risk aversion

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Related to CARA utility: Risk aversion

Risk Aversion

The subjective tendency of investors to avoid unnecessary risk. It is subjective because different investors have different definitions of unnecessary. An investor seeking a large return is likely to see more risk as necessary, while one who only wants a small return would find such an investment strategy reckless. However, most rational economic actors are sufficiently risk averse such that, given two investments with the same return and different levels of risk, they would choose the less risky investment.

risk aversion

The tendency of investors to avoid risky investments. Thus, if two investments offer the same expected yield but have different risk characteristics, investors will choose the one with the lowest variability in returns. If investors are risk averse, higher-risk investments must offer higher expected yields. Otherwise, they will not be competitive with the less risky investments.

risk aversion

the tendency for managers, consumers and other decision-makers to avoid undertaking risks and to choose less risky alternatives. See RISK PREMIUM.

risk aversion

the tendency for managers, consumers and other decision makers to avoid undertaking risks and to choose less risky alternatives. See RISK PREMIUM.
References in periodicals archive ?
For n [member of] N, [[alpha].sub.1], ..., [[alpha].sub.n] [greater than or equal to] 0, and [x.sub.1], ..., [x.sub.n], the Nash equilibrium of mean-variance optimization in Theorem 4 is also a Nash equilibrium for CARA utility maximization.
It means that the maximization of CARA utility is equivalent to maximization of the mean-variance function.
From the proof of Corollary 7, we get that the Nash equilibrium for mean-variance optimization in Theorem 4 is also a Nash equilibrium for CARA utility. The mean-variance optimization is equivalent to the maximization of CARA utility.
We have simulated the approximation under conditions of CRRA and CARA utility, to examine its robustness to various parameter changes.
This suggests that results that hold for the CARA utility function may hold for a broader class of preferences.
Table 1 reports the results for the case of CARA utility and the Weibull severity distribution.
However, for the class of CARA utility functions and small risks (i.e., random variables having small variance), one can obtain a local property relating [Delta][Pi] to r.