The terms ‘instability’ and ‘risk’ are sometimes used interchangeably in the literature. Some make the argument that instability will shift the firm's supply curve to the left if the producer is risk‐averse Risk, however, is associated with the unpredictable residuals, or deviations from the producer's revenue expectations. The inherent instability of these returns does not necessarily imply an added exposure to risk as long as the producer forms his expectations based on the entire information set available to him when constructing the mathematical model representing his judgement on the variables' future behaviour. The producer may also respond to the relative instability of the returns generated by an enterprise even if risk, as defined above, is perceived to be non‐existent. The existence of prediction errors exposes the producer to conditions of choice under risk while the predictable component exposes the producer to conditions of choice under instability. His preferences with regard to risk and instability may be quite different. The purpose of this paper is to extend the traditional planning model under risk to account for the producer's attitude toward the predicted instability of returns over time, and to illustrate the effect that this attitude will have upon his produ