Risk Averse
Risk averse is a term used to describe an individual or organization that prefers to avoid risk. This means that they are more likely to choose a course of action that has a lower potential for loss or damage, even if it means sacrificing potential gains. Risk averse individuals and organizations are typically more conservative in their decision-making, and may be more likely to choose a safe option over a risky one.
History of Risk Averse
The concept of risk aversion has been around for centuries, with the earliest known references appearing in the writings of the ancient Greek philosopher Aristotle. In modern times, the concept of risk aversion has been studied extensively by economists, who have developed a number of theories to explain why people and organizations may be more likely to choose a safe option over a risky one.
One of the most influential theories is the expected utility theory, which was developed by John von Neumann and Oskar Morgenstern in 1944. This theory suggests that individuals and organizations make decisions based on the expected utility of a given outcome, which is the sum of the probability of each outcome multiplied by its utility. This means that individuals and organizations are more likely to choose an option with a lower potential for loss, even if it means sacrificing potential gains.
Comparison Table
| Risk Averse | Risk Neutral | Risk Seeking |
|---|---|---|
| Low Potential for Loss | No Preference | High Potential for Gain |
| Sacrifice Potential Gains | No Preference | Accept Risk of Loss |
Summary
Risk averse is a term used to describe an individual or organization that prefers to avoid risk. This means that they are more likely to choose a course of action that has a lower potential for loss or damage, even if it means sacrificing potential gains. The concept of risk aversion has been studied extensively by economists, who have developed a number of theories to explain why people and organizations may be more likely to choose a safe option over a risky one. For more information about this term, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Risk Neutral
- Risk Seeking
- Expected Utility Theory
- Utility Function
- Risk Tolerance
- Risk Management
- Risk Premium
- Risk-Return Tradeoff
- Risk Appetite
- Risk Profile
