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Are Farmers Rational? Easy Answer

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Ever heard the joke about the farmer who wished for good prices and a good crop simultaneously?

Editor, Manitoba Co-operator

They say “it’s just a number,” but something strange happens to your journalistic perspective as you cross over to the dark side of 50.

Story leads that had you pulling out your notebook in the past, suddenly strike you as laugh-out-loud-until-your-gut-hurts-hilarious.

For example, take the question currently being researched by agricultural economists at the University of Manitoba.

ARE FARMERS RATIONAL?

Farmers? Rational? After 50 years of being closely associated with agriculture, first as a kid on the farm and then sitting in the back row of meeting halls listening to farmers talk, I can honestly say I’ve never put those two words into the same sentence.

In fact the very question conjures up examples of how irrational life on the ag beat can be. Farmers are collectively famous for doing things that seem irrational to the casual observer – such as increasing production in response to markets depressed by oversupply.

Or buying a combine with money they don’t have in December, (ostensibly to avoid paying taxes in March.)

This is not to discount the research or the researchers. In fact, it identifies some method to their madness.

Behavioural economics is a relatively

new field of research that recognizes humans don’t always react the way classic economic theory suggests they should.

Economists have finally figured out that our decisions are sometimes tainted by emotions, past experience, and a funny thing called intuition – some of the very things that make us human.

Although people may not always make rational decisions, they tend to be pretty consistent with their irrationalities. As a result, we tend to make predictable and avoidable mistakes.

We can – theoretically at least – learn from those mistakes and avoid repeating them. That’s if we become conscious of how our day-to-day decision-making is swayed.

WE HATE TO LOSE

For instance, we humans hate losing more than we like winning, which helps explain why herbicide ads on television emphasize

how those nasty weeds are robbing farmers of yield.

“Different choices are made if the same choice is framed as a loss rather than a gain,” says agricultural economist Fabio Mattos.

There’s plenty of jokes in circulation that play on these behaviours.

Ever heard the joke about the farmer who wished for good prices and a good crop simultaneously? The genie granted that risk. But the farmer still couldn’t bring himself to sell the grain. He told the befuddled genie he was afraid he might miss out on higher prices.

Mattos told of one experiment in which people were given two choices. If 600 people were at risk, one strategy would allow 200 to be saved. Another strategy would result in 400 people dying.

Seventy-two per cent of respondents favoured the first approach, while only 22 per cent favoured the second – even though they delivered the same result.

We are also guided by what behavioural economists call a “status quo bias.” Translated: “We don’t like change.” And there is that herd instinct. “Worldly wisdom teaches us it is better for your reputation to fail conventionally than to succeed unconventionally,” Mattos told a recent seminar.

Here’s another observation worth pondering. “Farmers who lose money the previous year tend to take more risk than farmers who experienced a gain in the previous year,” he noted.

Ever hear the one about the farmer confronted by his banker? As the banker went down the list of the farm’s losing enterprises one by one, the farmer’s only answer was: “It could have been worse.”

The frustrated banker finally asked: “How could this be any worse?”

The farmer replied: “It could have been my money.”

Mattos wants to study how farmers’ risk-taking behaviour affects their balance sheets. For example, can they become so fixated on avoiding weed losses in their fields that they spend more on control than they gain on yield?

“This work is not about individuals making right or wrong decisions, but rather on a better understanding of their decision-making process and the implications,” Mattos noted.

The inherent assumption complicating this work however, is that the environment in which farmers must make decisions is rational. What other business must factor volatile weather, complicated biological processes, fickle markets, crabby creditors and a family that wants to go camping during hay season into their day-to-day decision-making?

It will be interesting to learn what Mattos finds out. But it doesn’t take an agricultural economist to answer the first question.

If farmers were rational, there wouldn’t be any. They’d be off doing something that made more money with a lot less stress.

Nope. Farmers are as crazy as they come. And thank goodness for that.

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]

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