"Risk aversion" refers to a phenomenon whereby people try to avoid financial risk. This is manifested by a reluctance to take a high risk opportunity with a potentially high payoff. Risk averse people will instead opt for a low risk, low reward opportunity.
Because risk aversion exists, businesses that wish to engage in high risk behavior have to pay a "risk premium" in order to attract investors. Technically, the risk premium is the extra amount of return (over that of a risk-free investment) that the high-risk investment must pay to attract investors.
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