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Homo Economicus
(redirected from Rational investor)

   Also found in: Wikipedia 0.01 sec.
Homo Economicus
A person that desires to maximize his/her needs or desires. Homo economicus is used most of the time to refer to the rational economic actor, who desires wealth, does not desire to work if it can be avoided, and is able to find ways achieve those ends. This assumption is accepted by many economists, especially those who follow rational choice theory, but it remains controversial. The concept of homo economicus was developed by utilitarian thinkers, and contrasts with the constructs of behavioral economics.


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A rational investor should look not just at the risk of Stock A but the effect of adding Stock A on overall portfolio risk.
The lesson: for a rational investor who thinks in terms of the business behind the stock, the best time to buy is when it is available at a deep discount to its value.
Having taken into consideration the relative risk of making an investment into a particular business compared to investing the same money into a low risk, guaranteed return investment such as government bonds, the WACC represents the return or yield a rational investor would reasonably expect to receive when investing money in that business.
 
 
 
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