Risk averters and risk lovers.
Explanation of Solution
A person who has a diminishing
There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.
Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.
Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.
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