risk aversion


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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 ?
Although the nonindependence of [??] and [??] precludes our intuition from holding precisely, it does hold under the assumption that relative risk aversion is larger than unity.
In this section, we carry out some comparative statics graphical experiments about the effects of the degree of relative risk aversion on economic welfare for different values of nominal variables.
The authors of this study conjecture that the level of risk aversion of carry traders on the Japanese yen is directly related to the risk aversion level in overall Japanese financial markets as indicated by Japanese bond default risk spread.
Our matching model is a modified version of Series (2005) who derived the equilibrium relationship between the principal's risk and the power of incentives, whereas we derive the relationship between the agents' risk aversion (ability) and incentives.
Logistic Regression Results for the Effect of Risk Attitude on Studying Abroad Dependent variable (1) (2) Constant .575 (.559) 3.821 (4.344) Risk aversion -.262 ** (.119) -.278 ** (.120) Gender .113 (.333) Income .002 (.337) Hometown region -.570 (.387) Graduation year -.123 (.305) GPA -.680 (.517) Pseudo [R.sup.2] .0197 .0439 Note.
On the other hand, human with high risk aversion aims to set the first priority in minimizing the risk of loss before maximizing the return, i.e.
In estimating risk aversion, the literature has focused almost exclusively on developed countries.
Our contribution is to establish the link between risk aversion and maximum possible loss in some classical utility function optimization.
Our analysis shows that opportunity costs of land can make a significant difference to the breakeven prices of biomass from energy crops under both risk neutrality and risk aversion. Additionally, the relatively higher yield risks associated with energy crop production as compared to corn/soybeans, particularly in the upper Midwest, can result in higher breakeven prices needed to induce risk-averse landowners to convert cropland to energy crops.
dollar fell to its lowest level in around a month near the 100 yen line in Tokyo on Monday, as sharp falls in Japanese shares heightened risk aversion and drove players to the perceived safety of the yen.
Risk aversion can be approximated by the relative size of expected gains given up for a certain prospect.
The work in [11] studied a continuous-time mean-variance portfolio optimization model on the assumption that the risk aversion factor depended dynamically on the current wealth.