Asked by Rachel Sanchez on Jun 17, 2024
Verified
Of any two gambles, no matter what their expected returns, a risk averter will choose the one with the smaller variance.
Risk Averter
An individual or entity that prefers to avoid risk, choosing options that have a more certain outcome even if it potentially means receiving lower returns.
Variance
A measure of dispersion that shows how much the values in a set differ from the mean or expected value.
- Become familiar with the concept of risk aversion and its effect on the selection process during uncertain times.
- Ascertain the expected outcome of a bet and evaluate it against certain results to opt for logical selections.
Verified Answer
MA
Maria AlvirezJun 23, 2024
Final Answer :
False
Explanation :
A risk averter prioritizes lower risk but does not always choose the gamble with the smaller variance if the expected return significantly compensates for the higher risk. The decision depends on their risk-return trade-off preferences.
Learning Objectives
- Become familiar with the concept of risk aversion and its effect on the selection process during uncertain times.
- Ascertain the expected outcome of a bet and evaluate it against certain results to opt for logical selections.