Explain risk aversion
Introduction:
Risk can be characterized in terms of the uncertainty of future consequences resulting from a given investment. In other words, risk is the nothing but a deviation from the anticipated returns, and the future consequences of the investment made.
Answer:
Risk aversion: In this type of attitude, individuals avoid risk on the grounds of uncertainty. They want to take a direction that is most certainly less profitable, but they do not like to lose.
It is also means that an individual maximizes his utility from a limited level of income rather than from an unknown higher level of income. He wants to escape risky scenarios.
Risk aversion is nothing but the tendency to favour decisions with assured results over those with unpredictable outcomes. It is a comparatively widespread decision-making characteristic of managers. A risk-averse manager is biased towards the decisions that have an unpredictable outcome, even though the predicted outcome is favourable. Choices with assured outcomes are favoured by the risk-averse managers to choices with more desirable outcomes, which are not known.
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