risk aversion(redirected from CARA utility)
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Related to CARA utility: 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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
risk aversionthe tendency for managers, consumers and other decision-makers to avoid undertaking risks and to choose less risky alternatives. See RISK PREMIUM.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
risk aversionthe tendency for managers, consumers and other decision makers to avoid undertaking risks and to choose less risky alternatives. See RISK PREMIUM.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005