For the related psychological concept, see Risk aversion (psychology).
Risk aversion (red) contrasted to risk neutrality (yellow) and risk loving (orange) in different settings. Left graph: A risk averse utility function is concave (from below), while a risk loving utility function is convex. Middle graph: In standard deviation-expected value space, risk averse indifference curves are upward sloped. Right graph: With fixed probabilities of two alternative states 1 and 2, risk averse indifference curves over pairs of state-contingent outcomes are convex.
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome.[1]
Risk aversion explains the inclination to agree to a situation with a more predictable, but possibly lower payoff, rather than another situation with a highly unpredictable, but possibly higher payoff. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value.
^Werner, Jan (2008). "Risk Aversion". The New Palgrave Dictionary of Economics. pp. 1–6. doi:10.1057/978-1-349-95121-5_2741-1. ISBN 978-1-349-95121-5.
In economics and finance, riskaversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even...
hyperbolic absolute riskaversion and at the same time is the only class of utility functions with constant relative riskaversion, which is why it is...
Loss aversion was first proposed by Amos Tversky and Daniel Kahneman as an important framework for prospect theory – an analysis of decision under risk. Finance...
theory and economics, ambiguity aversion (also known as uncertainty aversion) is a preference for known risks over unknown risks. An ambiguity-averse individual...
instead of the expected value of an outcome, accounting for riskaversion, where the risk premium is higher for low-probability events than the difference...
of relative riskaversion which are not required to be inversely related - a restriction imposed by the constant relative riskaversion utility function...
themselves for having caused the unsustainable economic conditions. Riskaversion is a kind of trading behavior exhibited by the foreign exchange market...
aversion Inequity aversion Loss aversionRiskaversion Taste aversion Work aversionAversion may also refer to: Aversion therapy Aversion (film) Dvesha (Buddhism)...
This would result in a risk premium of 5%. Individual investors set their own risk premium depending on their level of riskaversion. The formula can be...
Counterfactual thinking is a concept in psychology that involves the human tendency to create possible alternatives to life events that have already occurred;...
Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include...
consideration of utility. Some economists have studied the effects of riskaversion on the bargaining solution. Compare two similar bargaining problems...
built upon works by economists such as Robert Solow on the concept of riskaversion.[citation needed] Stiglitz and Rothschild showed three plausible definitions...
observed in economics, like the disposition effect or the reversing of riskaversion/risk seeking in case of gains or losses (termed the reflection effect)...
Gijs van de Kuilen; Nathanael Vellekoop (2013). "Riskaversion and religion" (PDF). Journal of Risk and Uncertainty. 47 (2): 165–183. doi:10.1007/s11166-013-9174-8...
or an option involving risk and indicated the first day of their last menstruations, and found that the subjects riskaversion preferences varied over...
riskaversion substantially increased after the 2008 crisis. This encouraged individuals to divest more stock. From a macroeconomic perspective, risk...
risk preference ( a > 0 {\displaystyle a>0} for riskaversion, a = 0 {\displaystyle a=0} for risk-neutrality, or a < 0 {\displaystyle a<0} for risk-seeking)...
modeling of financial markets), the entropic risk measure is a risk measure which depends on the riskaversion of the user through the exponential utility...
imposed by governments) Though corporate entities may have an image of riskaversion, they may continue to stake their reputations and indulge in their gambling...
wealth – atrophy in a modern, risk society, in which people occupy social risk positions that are achieved through riskaversion. "In some of their dimensions...
The uncertainty effect, also known as direct riskaversion, is a phenomenon from economics and psychology which suggests that individuals may be prone...
behavioral economics, the endowment effect (also known as divestiture aversion) is the finding that people are more likely to retain an object they own...
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