Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making

Flat Earth Economics: The Far-reaching Consequences of Flat Payoff Functions in Economic Decision Making

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Article ID: iaor201524579
Volume: 28
Issue: 4
Start Page Number: 553
End Page Number: 566
Publication Date: Dec 2006
Journal: Review of Agricultural Economics
Authors:
Keywords: optimization, decision: studies
Abstract:

Economists tend to emphasize the optimum, but in many cases, even large deviations from optimal decisions make little difference to the payoff. This has far‐reaching implications that are under‐recognized, including: (a) decision makers often have a wide margin for error in their production planning decisions, and flexibility to pursue factors not considered in the calculation of payoffs; (b) optimizing techniques are sometimes of limited practical relevance for decision support; (c) the value of information used to refine management decisions is often low; and (d) the benefits of using ‘precision farming’ technologies to adjust production input levels are often low.

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