The Risk Efficiency Tool uses Stochastic Efficiency with Respect to a Function (SERF) analysis and the stoplight graphical approach to rank alternatives for all levels of risk preference. The Risk Efficiency Tool is designed to compare three management alternatives. It comes with sample data already entered into each Excel worksheet. This will provide a direct reference to materials in the Applied Risk Management in Agriculture textbook and an example for how to enter your own data.
The SERF analysis works by identifying utility efficient alternatives for a range of risk preferences. SERF orders preferred alternatives in terms of certainty equivalents (CEs) as the degree of risk aversion increases.
The stoplight approach allows the user to set a lower boundary that represents a minimum outcome and an upper boundary that represents a positive threshold. It then provides an intuitive graphic depicting in red the probability of falling below the lower boundary, in green the probability of being above the upper boundary, and in yellow the probability of being between them.