Ranch Decision-Making under Uncertainty—an Illustration

Abstract

Risk and uncertainty were explicitly included in a ranch decision model by the use of quadratic programming. Alternative ranch organizations are presented for a typical ranch firm in the Rolling Plains of Texas. These organizations illustrate the trade-offs between increasing net ranch income and the annual stability of income. To increase profits, the typical rancher was required to assume increasing amounts of risk. Incorporation of risk in the decision model improved understanding of the decision-making process of ranchers and the reasons why two similar ranchers could be "optimally" organized and operate with completely different ranch plans.