RISK ASSESSMENT AND PROBABILITY ASSESSMENT: A COMPARATIVE ANALYSIS

Abstract

With the possibility of uncertain events such as those that affect agricultural production, risk assessment is often made by a conservative method that does not require proposal of a distribution function. However, that method will always overestimate the riskiness of an activity with respect to the application of a probability model. In order to assess how large is this departure relative to a specific model, two methods were compared when applied to a sample of wheat (Triticum aestivum L.) producers in which income is approximated by a three-parameter beta distribution and a logarithmic utility function. It was found that the estimation of the risk premium can be reduced up to 1.52 times with respect to the conservative method.