Our behaviour is often irrational because it’s influenced by various cognitive biases and emotional factors that lead people to make decisions not based on logic or reason.
As an analyst passionate about eliminating emotions from grain marketing to improve outcomes, today’s article will bring awareness to these behaviours and the myth of rational choice.
The myth of rational choice in grain marketing assumes that farmers will make logical and well-informed decisions about when and how to sell their grain based on market conditions and production costs. However, this assumption does not consider the various biases affecting a farmer's decision-making process.
One bias influencing a farmer's decision is the status quo bias, which is the tendency to stick with the current course of action even if a change would be beneficial. For example, a farmer may continue to sell their grain to the same buyer or marketing channel year after year, even if another option would be more profitable.
“This is the way we have always done it”, and selling based on ‘seasonality price behaviour’ comes to mind.
Another bias affecting a farmer's decision is the anchoring bias, which is the tendency to anchor price expectations to a previously high level. For example, farmers may hold onto a crop longer than they should because they believe the price will return to the previous high levels, even if the market conditions have changed.
The availability bias is another bias that can affect a farmer's decision; it's the tendency to rely on readily available information, even if it's not accurate or relevant. For example, a farmer may decide based on a news article or a rumor they heard from a friend instead of doing their research or consulting a professional.
Is it current? Is it accurate? Is it interpreted accurately? Remember, only the Price Pays.
Moreover, optimism bias is also present; it tends to overestimate the likelihood of positive outcomes and underestimate the likelihood of negative outcomes. For example, a farmer may believe that the price of grain will increase in the future, even if the market conditions indicate otherwise.
We see what we want to see.
In conclusion, the myth of rational choice in grain marketing assumes that farmers will make logical and well-informed decisions about how to market their grain.
However, in reality, the decision is affected by various biases such as status quo bias, anchoring bias, availability bias, and optimism bias. These biases can lead farmers to make decisions not in their best interest and may result in lost profits.
It's crucial for farmers to be aware of these biases and to take steps to mitigate them by seeking out multiple sources of information, consulting with experts, or regularly reviewing and evaluating their marketing strategies.