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Economics theory
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even
Risk_aversion
Concept in psychology
Risk aversion is the preference for a guaranteed outcome over a gamble with higher or equal expected value. Conversely, rejection of a sure thing in favor
Risk_aversion_(psychology)
Concept in economics
hyperbolic absolute risk aversion and at the same time is the only class of utility functions with constant relative risk aversion, which is why it is
Isoelastic_utility
Concept in economics
instead of the expected value of an outcome, accounting for risk aversion, where the risk premium is higher for low-probability events than the difference
Expected_utility_hypothesis
Optimality condition in optimal control theory
The Hamilton-Jacobi-Bellman (HJB) equation is a nonlinear partial differential equation that provides necessary and sufficient conditions for optimality
Hamilton–Jacobi–Bellman equation
Hamilton–Jacobi–Bellman_equation
Preference of known risks to unknown risks
theory and economics, ambiguity aversion (also known as uncertainty aversion) is a preference for known risks over unknown risks. An ambiguity-averse individual
Ambiguity_aversion
Economics concept
of relative risk aversion which are not required to be inversely related - a restriction imposed by the constant relative risk aversion utility function
Equity_premium_puzzle
Paradox in expected-utility theory
calibration of risk aversion within expected-utility theory. In intuitive terms, it shows that an expected-utility maximizer who is moderately risk averse over
Rabin's_calibration_theorem
economics, and decision theory, hyperbolic absolute risk aversion (HARA) refers to a type of risk aversion that is particularly convenient to model mathematically
Hyperbolic absolute risk aversion
Hyperbolic_absolute_risk_aversion
Topics referred to by the same term
Inequity aversion Loss aversion Risk aversion Sexual aversion Taste aversion (disambiguation) Work aversion Aversion may also refer to: Aversion therapy
Aversion
Aspect of decision and prospect theories
framed as a loss, rather than a gain. It should not be confused with risk aversion, which describes the rational behavior of valuing an uncertain outcome
Loss_aversion
Possibility of something bad happening
that affect the perception of risk include ambiguity aversion. Paul Slovic's "psychometric paradigm" assumes that risk is subjectively defined by individuals
Risk
Paradox in decision theory
paradox in his 1961 paper, "Risk, Ambiguity, and the Savage Axioms". It is generally taken to be evidence of ambiguity aversion, in which a person tends
Ellsberg_paradox
Any individual whose preferences satisfy four axioms has a utility function
VNM-rationality at all. This leads to a quantitative theory of monetary risk aversion. In 1738, Daniel Bernoulli published a treatise in which he posits that
Von Neumann–Morgenstern utility theorem
Von_Neumann–Morgenstern_utility_theorem
Theorem of convex functions
relation between risk aversion and declining marginal utility for scalar outcomes can be stated formally with Jensen's inequality: risk aversion can be stated
Jensen's_inequality
Willingness to take risks
be less favorable. Within behavioral economics, risk-seeking is often contrasted with risk aversion and analyzed using expected utility theory and prospect
Risk-seeking
The uncertainty effect, also known as direct risk aversion, is a phenomenon in economics and psychology in which individuals value a risky prospect (such
Uncertainty_effect
Form of the utility function
risk preference ( a > 0 {\displaystyle a>0} for risk aversion, a = 0 {\displaystyle a=0} for risk-neutrality, or a < 0 {\displaystyle a<0} for risk-seeking)
Exponential_utility
Measure of excess
This would result in a risk premium of 5%. Individual investors set their own risk premium depending on their level of risk aversion. The formula can be
Risk_premium
Problem in process of sharing surplus
consideration of utility. Some economists have studied the effects of risk aversion on the bargaining solution. Compare two similar bargaining problems
Cooperative_bargaining
Swedish-born experimental economist
W., and E. Elisabet Rutström, “Risk Aversion in the Laboratory,” in J.C. Cox and G. W. Harrison (eds.), Risk Aversion in Experiments (Bingley, UK: Emerald
Elisabet_Rutström
Global decentralized trading of international currencies
February 2010). "Global markets – US stocks rebound, dollar gains on risk aversion". Reuters. Retrieved 27 February 2010. Stewart, Heather (9 April 2008)
Foreign_exchange_market
Cognitive bias
behavioral economics, the endowment effect, also known as divestiture aversion, is the finding that people are more likely to retain an object they own
Endowment_effect
consumption path will be preferred to the more volatile one. This is due to risk aversion on part of individual agents. One way to calculate how costly this greater
Welfare cost of business cycles
Welfare_cost_of_business_cycles
Theory of behavioral economics
geometric properties indicate risk-aversion for gains and risk-seeking for losses, thereby characterizing loss aversion. These properties were derived
Prospect_theory
Degree of religious commitment or involvement
Gijs van de Kuilen; Nathanael Vellekoop (2013). "Risk aversion and religion" (PDF). Journal of Risk and Uncertainty. 47 (2): 165–183. doi:10.1007/s11166-013-9174-8
Religiosity
Birth control method taken orally
or an option involving risk and indicated the first day of their last menstruations, and found that the subjects risk aversion preferences varied over
Combined oral contraceptive pill
Combined_oral_contraceptive_pill
Analysis of the risks and potential benefits of an action
individuals are exposed to involuntary risk (a risk over which they have no control), they make risk aversion their primary goal. Under these circumstances
Risk–benefit_ratio
Preference for fairness and resistance to incidental inequalities
Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include
Inequity_aversion
modeling of financial markets), the entropic risk measure is a risk measure which depends on the risk aversion of the user through the exponential utility
Entropic_risk_measure
Financial metric
indication tool as the size of the swap spread reflects the level of risk aversion within the financial markets. Swap spreads is a term coined by economists
Swap_spread
Uncertainty in profitability and operations
imposed by governments) Though corporate entities may have an image of risk aversion, they may continue to stake their reputations and indulge in their gambling
Business_risks
Identification, evaluation and control of risks
risk analysis Precautionary principle Redundancy (engineering) Reference class forecasting Representative heuristic Risk appetite Risk aversion Risk management
Risk_management
Concept in psychology
Counterfactual thinking is a concept in psychology that involves the human tendency to create possible alternatives to life events that have already occurred;
Counterfactual_thinking
Mathematical model in optimal trade execution
producing closed-form optimal trajectories that depend on the trader's risk aversion. A trader holds X {\displaystyle X} shares of a single asset and must
Almgren–Chriss_model
Specification in economics of recursive utility
\alpha <1} encodes risk aversion, with smaller values of α {\displaystyle \alpha } , other things equal, implying a stronger aversion to risk. The parameter
Epstein–Zin_preferences
American business academic
has made contributions to research in risk aversion theory, notably with Kenneth Arrow on measures of risk aversion. In 1962 he was elected as a Fellow
John_W._Pratt
risk aversion substantially increased after the 2008 crisis. This encouraged individuals to divest more stock. From a macroeconomic perspective, risk
Causes of the euro area crisis
Causes_of_the_euro_area_crisis
American economist (born 1963)
fairness and social preferences, present bias and self-control, risk attitudes, loss aversion and reference dependence, and systematic errors people make
Matthew_Rabin
explains, "By investing in more than one asset category, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will
Market-linked_CD
Self-initiated behavior pattern
terms. In moderation, this can be an effective expression of social risk aversion. Taken to excess, reactivity is a form of disempowerment. The use of
Proactivity
Chinese business magnate and investor (born 1964)
2020, following his public criticism of regulators for prioritizing risk aversion over innovation. Ma was born in Hangzhou, Zhejiang, on 10 September
Jack_Ma
Manner in which modern society organizes in response to risk
wealth – atrophy in a modern, risk society, in which people occupy social risk positions that are achieved through risk aversion. "In some of their dimensions
Risk_society
Selective trading based on possession of hidden information
high-risk individuals. Another possible reason is the negative correlation between risk aversion (such as the willingness to purchase insurance) and risk level
Adverse_selection
Process of selecting a portfolio
of risk. The latter component, the cost of risk, is defined as the portfolio risk multiplied by a risk aversion parameter (or unit price of risk). For
Portfolio_optimization
Portfolio optimization model in finance
investor's utility function is concave and increasing, due to their risk aversion and consumption preference. Analysis is based on single period model
Markowitz_model
Platforms for betting on events
accuracy of prediction markets: Steven Gjerstad (Purdue), in his paper "Risk Aversion, Beliefs, and Prediction Market Equilibrium", has shown that prediction
Prediction_market
probability event to a cost Risk assessment – Estimation of risk associated with exposure to a given set of hazards Risk aversion – Economics theory ISO/IEC
Statistical_risk
Thought experiment in political philosophy
that if the original position is formulated under risk neutrality rather than extreme risk aversion, the resulting principle shifts away from Rawls’s
Original_position
Part of the brain's prefrontal cortex
seems that the same area is also implicated in risk aversion: a study found that higher risk aversion correlated with higher activity at IFG. This might
Inferior_frontal_gyrus
Genetic variant
of the polymorphism with personality traits including extroversion, risk aversion, and novelty seeking. "SZGene". Archived from the original on 2012-02-15
Rs4680
} ≠ 1 referred to as the constant coefficient of relative risk aversion (with risk aversion approaching infinity as γ {\displaystyle \gamma } → ∞). Constant
Isoelastic_function
Overview of finance and finance-related topics
targets Risk aversion – Economics theory Risk-based internal audit – Internal audit approach that prioritises areas with higher organisational risk Risk measure –
Outline_of_finance
Italian economist
theoretical and applied econometrics, whose research topics include risk aversion, survey methodology, and set identification. She is H. T. Warshow and
Francesca_Molinari
Israeli-American economist
decision-making under uncertainty, he has worked on the measurement of risk aversion, the modeling state-dependent preferences and the definition of subjective
Edi_Karni
Measure of value difference between best possible decision and made decision
central role in how humans learn from experience and in the psychology of risk aversion. The conscious anticipation of regret creates a feedback loop that elevates
Regret_(decision_theory)
Academic discipline concerned with the exchange of money
p_{s}} respectively. This decision method, however, fails to consider risk aversion. In other words, since individuals receive greater utility from an extra
Financial_economics
American economist and Nobel Laureate (born 1943)
built upon works by economists such as Robert Solow on the concept of risk aversion, expanding the concept as Mmean-preserving spreads or economic consensus
Joseph_Stiglitz
Israeli-American economist (born 1953)
societies. Key concepts related to behavioural economics, such as risk aversion and loss aversion, were also studied through evolutionary lenses. Galor and Savitsky
Oded_Galor
Type of foreign policy
assertive, or threatening position on a subject (broadly, a geopolitical risk aversion strategy). Currently, two governments claim legitimate rule and sovereignty
Policy of deliberate ambiguity
Policy_of_deliberate_ambiguity
construction balances expected portfolio variance with return and uses a risk aversion metric to select the optimal mix of investments. By contrast, GBI optimizes
Goal-based_investing
Reliable and stable globally-traded currency
reference portfolio of risky assets conditional on movements in global risk aversion. Conversely, a weak or soft currency is one which is expected to fluctuate
Hard_currency
Partial order between random variables
{\displaystyle X_{i}} "stochastically dominates" X j {\displaystyle X_{j}} . Risk aversion is a factor only in second order stochastic dominance. Stochastic dominance
Stochastic_dominance
Risk management strategy
principle Prevention of disasters principle Proactionary principle Risk aversion Scientific skepticism Substitution principle (sustainability) Superconducting
Precautionary_principle
Coherent risk measure using weighted outcomes based on risk aversion
coherent risk measure, but the converse does not always hold. An advantage of spectral measures is the way in which they can be related to risk aversion, and
Spectral_risk_measure
Neither risk aversion nor risk seeking
In economics and finance, risk neutral preferences are preferences that are neither risk averse nor risk seeking. A risk neutral party's decisions are
Risk_neutral_preferences
Pause during scheduled transportation
Georg; Adler, Thomas; Clarke, John-Paul; Ben-Akiva, Moshe (2006). "Risk Aversion to Short Connections in Airline Itinerary Choice". Transportation Research
Layover
Buy/position trading
by recency bias, emotions, and must understand their propensity to risk aversion. Investors must buy financial instruments that they expect to appreciate
Buy_and_hold
Branch of microeconomics
classified under three main categories: risk aversion, risk neutrality and risk-seeking dispositions. Risk-averse managers have a tendency to prefer investments
Information_economics
Type of cryptocurrency that is reserve backed
causing loss of bank deposits. The capital outflow would be caused by risk aversion of individuals within the developing countries against sudden sharp
Stablecoin
Conflict of interest when one person acts on another's behalf
that compensation tend to have an impact on performance as a result of risk aversion and the level of work that a CEO is willing to input. This showed that
Principal–agent_problem
Interdisciplinary field
loss aversion another found that individuals with damaged amygdalas had a lack of loss aversion even though they had normal levels of general risk aversion
Neuroeconomics
To like one thing more than another
S2CID 12544303. Harrison, Glenn W.; Rutström, E. Elisabet (2008), "Risk Aversion in the Laboratory", Research in Experimental Economics, vol. 12, Bingley:
Preference
Type of asset-backed security
trends, and a shifting risk aversion profile, which can make fixed rate mortgages relatively more or less attractive The credit risk of mortgage-backed securities
Mortgage-backed_security
Reduced sales when new product is announced
leading to job insecurity, decreased job satisfaction, job alienation and risk aversion. Cannibalization can be a necessary evil in some cases. As sales plateau
Cannibalization_(marketing)
Mathematical framework for investment risk
investors will evaluate the trade-off differently based on individual risk aversion characteristics. The implication is that a rational investor will not
Modern_portfolio_theory
Approach to portfolio selection under loss aversion
the risk aversion properties of chance-constrained portfolio selection, see. Capital asset pricing model Expected utility theory Financial risk management
Chance-constrained portfolio selection
Chance-constrained_portfolio_selection
Forex trading
to become a copier and discovered that risk aversion is a deciding factor. The higher the subjects' risk aversion, the more likely they are to imitate others
Copy_trading
How equities and debt instruments are valued
given state prices. The CAPM, for example, can be derived by linking risk aversion to overall market return, and restating for price. Black-Scholes can
Asset_pricing
Percentage of a sum of money charged for its use
doi:10.1016/j.jfs.2023.101151. hdl:10419/212417. Benchimol, J., 2014. Risk aversion in the Eurozone, Research in Economics, vol. 68, issue 1, pp. 39–56
Interest_rate
Cognitive tendency where lack of information affects decision making
does not address. Ambiguity aversion Black swan theory Choice under uncertainty Ellsberg paradox Prospect theory Risk aversion VUCA Croskerry, Pat; Cosby
Ambiguity_effect
Level of information in economics and game theory
is available to all participants. The utility functions (including risk aversion), payoffs, strategies and "types" of players are thus common knowledge
Complete_information
Paradox involving a game with repeated coin flipping
Daniel Kahneman and Amos Tversky. Paul Weirich similarly wrote that risk aversion could solve the paradox. Weirich went on to write that increasing the
St._Petersburg_paradox
Currency of the European Union
although transaction costs were reduced, some studies have shown that risk aversion has increased during the last 40 years in the Eurozone. Another effect
Euro
Use of land by a tenant in return for a share of the crops produced
Macmillan and Co., Ltd. Cheung, Steven N S (1969). "Transaction Costs, Risk Aversion, and the Choice of Contractual Arrangements". Journal of Law & Economics
Sharecropping
Concept in economics and decision theory
preferences King–Plosser–Rebelo preferences Hyperbolic absolute risk aversion Most utility functions used for modeling or theory are well-behaved
Utility
Problem in continuous-time finance
{\displaystyle \gamma } is a constant which expresses the investor's risk aversion: the higher the gamma, the more reluctance to own stocks. The wealth
Merton's_portfolio_problem
American economist (born 1951)
of bargaining outcomes, and that while risk averse bargainers make concessions to resolve their aversion to risk, this is less harmful than what conventional
Alvin_E._Roth
Generalized expected utility model of choice under uncertainty
both purchase lottery tickets (implying risk-loving preferences) and insure against losses (implying risk aversion). A natural explanation of these observations
Rank-dependent expected utility
Rank-dependent_expected_utility
inflationary pressure associated with QE. This announcement brought a bout of risk aversion in the equity markets and strengthened the US Dollar, whereas QE I had
History of Federal Open Market Committee actions
History_of_Federal_Open_Market_Committee_actions
State of low mood and aversion to activity
Depression is a mental state of low mood and aversion to activity. It affects about 3.5% of the global population, or about 280 million people worldwide
Depression_(mood)
Method of measuring risk-adjusted returns on real estate property investments
ratings models typically assume that investors have constant relative risk aversion over the wealth derived from both other sources and their investments
Investment rating for real estate
Investment_rating_for_real_estate
2024 Canadian film
festivals and industry panels have noted distributors’ and broadcasters’ risk aversion and growing reluctance to support overtly political documentaries as
Russians_at_War
credit scores. Many regional banks are facing obstacles such as the high risk-aversion of the Japanese population in general, increasing competition and stricter
Loans_in_Japan
Concept in information theory
distribution and R {\displaystyle R} is the investor's risk aversion (the Arrow–Pratt relative risk aversion). If the true distribution is p {\displaystyle p}
Rényi_entropy
List of statements that appear to contradict themselves
in itself. Ellsberg paradox: People exhibit ambiguity aversion (as distinct from risk aversion), in contradiction with expected utility theory. Fenno's
List_of_paradoxes
Monetary damage caused by greenhouse gases
value of future damages Adds a risk premium to account for potential catastrophic damage, uncertainty, and risk aversion S C C 2 = S C C 1 + ( M C R D
Social_cost_of_carbon
Currency of South Africa
2007; inflation at a five-year high of just under 9%; escalating global risk aversion as investors' concerns over the spreading impact of the subprime crisis
South_African_rand
Cooperative international body on global financial system
function effectively" and had "weathered" the "spikes in uncertainty and risk aversion", confirming that "this resilience in the face of stress demonstrates
Financial_Stability_Board
Difference between males and females
2139/ssrn.2238. Adhikari BK, O'Leary VE (2011). "Gender Differences in Risk Aversion: A Developing Nation's Case". Journal of Personal Finance. 10 (2): 122–147
Sex_differences_in_humans
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