Risk Aversion
Definition
A preference for a sure outcome over a risky one with the same expected value. Implies a concave utility function over wealth.
Example
Most people prefer $50 for sure over a 50/50 chance of $0 or $100.
A preference for a sure outcome over a risky one with the same expected value. Implies a concave utility function over wealth.
Most people prefer $50 for sure over a 50/50 chance of $0 or $100.