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"Risk aversion does not mean that people and institutions are not willing to take risks. However, they need to be compensated for taking risk" Explain and discuss.
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"Risk aversion does not mean that people and institutions are not willing to take risks. However, they need to be compensated for taking risk" Explain and discuss. There are a number of key issues that need to be discussed on this topic but firstly we will start with the definition of what this statement means. A person or institution is said to be risk averse if they prefer having less risk than more risk, all other things considered being equal. The opposite of this would be a risk seeker (sometimes called risk loving or speculator) and this person/institution actively seeks risk and thus prefers more risk to less risk. Most financial theories will assume that generally investors are not risk seeking. However, it is possible to observe risk seeking in actual life, those that play the lottery or gamble in casinos accept the expected negative return in return for the thrill of...
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