Risk Aversion in Economic Decision Making: Pragmatic Guides for Consistent Choice by Natural Resource Managers

Abstract

Risk in agriculture and natural resource management (NRM), as in life, is everywhere. But dealing with it systematically, whether for farmers, other natural resource managers, researchers or anyone, is difficult. The difficulty comes from the complexity of risky choice and so cannot be avoided. In this chapter we deal with only one aspect of that complexity, namely risk aversion. We review the capture of risk aversion in economic decision making through consistent application of the subjective expected utility (SED) hypothesis, and examine how some of the inherent challenges in applications to NRM might best be handled. We do not here take up some of the modem alternatives to SEU such as reviewed by Chambers and Quiggin (2000).