{"id":2252,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2252"},"modified":"2026-03-08T17:30:50","modified_gmt":"2026-03-08T17:30:50","slug":"risk-aversion","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/","title":{"rendered":"Risk Aversion"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"In a choice of a certain $45 versus a 50% chance of $100, an investor chooses the certain $45. What type of risk behavior does this scenario represent?\",\n    \"text\": \"In a choice of a certain $45 versus a 50% chance of $100, an investor chooses the certain $45. What type of risk behavior does this scenario represent?\\n\\nA. Risk-seeking behavior.\\n\\nB. Risk-neutral behavior.\\n\\nC. Risk-averse behavior.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. Risk-averse behavior. A risk-averse investor prefers a certain outcome over a risky alternative with a higher expected value. In this case, the expected value of the gamble is $50 (0.5 \u00d7 $100), but the investor prefers the guaranteed $45, indicating risk aversion.\"\n    }\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/DLKhsZvcD-c\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><br \/>\nRisk aversion is related to investor behavior. Some investors are more comfortable with uncertainty in the outcome than others and are prepared to tolerate more risk in the pursuit of greater portfolio returns.<\/p>\n<h2><strong>Risk Seeking<\/strong><\/h2>\n<p>Risk seekers actively pursue risk even when the potential outcome does not justify taking extra risk. This is a gambling instinct: choosing to place money at casinos, knowing the odds of winning are slim or that the expected return is actually negative.<\/p>\n<h2><strong>Risk Neutrality<\/strong><\/h2>\n<p>If an investor is indifferent to the outcome, they may be risk-neutral. This means they will likely pursue higher returns even if this comes with higher risk. This is often the case, particularly when the investment represents a small portion of their wealth or portfolio.<\/p>\n<h2><strong>Risk Aversion<\/strong><\/h2>\n<p>A risk-averse investor will gravitate towards a guaranteed outcome and shy away from risky investments. A lower, certain return will be preferable to a higher, less certain return. Market data typically represents risk-averse behavior on the part of investors, and risk aversion is, as such, a standard assumption.<\/p>\n<h2><strong>Risk Tolerance<\/strong><\/h2>\n<p>Risk tolerance refers to the amount of risk an investor is willing to take in order to achieve their investment goals and objectives. A higher risk tolerance shows a greater willingness to take risks. This implies that risk tolerance and risk aversion are negatively correlated.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>In a choice of a certain $45 versus a 50% chance of $100, an investor chooses the certain $45. What type of risk behavior does the following scenario represent?<\/p>\n<p>A. Risk-seeking behavior.<\/p>\n<p>B. Risk-neutral behavior.<\/p>\n<p>C. Risk-averse behavior.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>A risk-averse investor will likely select the guaranteed option instead of the uncertain outcome, even though the uncertain outcome has a higher expected return of $50.<\/p><\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Risk aversion is related to investor behavior. Some investors are more comfortable with uncertainty in the outcome than others and are prepared to tolerate more risk in the pursuit of greater portfolio returns. Risk Seeking Risk seekers actively pursue risk&#8230;<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7],"tags":[],"class_list":["post-2252","post","type-post","status-publish","format-standard","hentry","category-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Risk Aversion in Portfolio Management | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Risk Aversion in Portfolio Management | CFA Level 1\" \/>\n<meta property=\"og:description\" content=\"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-12T13:33:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-08T17:30:50+00:00\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\"},\"headline\":\"Risk Aversion\",\"datePublished\":\"2019-09-12T13:33:00+00:00\",\"dateModified\":\"2026-03-08T17:30:50+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\"},\"wordCount\":289,\"articleSection\":[\"Portfolio Management\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\",\"name\":\"Risk Aversion in Portfolio Management | CFA Level 1\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-09-12T13:33:00+00:00\",\"dateModified\":\"2026-03-08T17:30:50+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\"},\"description\":\"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Risk Aversion\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251\",\"name\":\"admin\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g\",\"caption\":\"admin\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/admin\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/DLKhsZvcD-c\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"3339\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-09-12T13:33:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Risk Aversion in Portfolio Management | CFA Level 1","description":"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/","og_locale":"en_US","og_type":"article","og_title":"Risk Aversion in Portfolio Management | CFA Level 1","og_description":"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-09-12T13:33:00+00:00","article_modified_time":"2026-03-08T17:30:50+00:00","author":"admin","twitter_card":"summary_large_image","twitter_misc":{"Written by":"admin","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/"},"author":{"name":"admin","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251"},"headline":"Risk Aversion","datePublished":"2019-09-12T13:33:00+00:00","dateModified":"2026-03-08T17:30:50+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/"},"wordCount":289,"articleSection":["Portfolio Management"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/","name":"Risk Aversion in Portfolio Management | CFA Level 1","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-09-12T13:33:00+00:00","dateModified":"2026-03-08T17:30:50+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251"},"description":"Explore investor attitudes toward risk, including risk aversion, risk neutrality, and risk-seeking behavior in portfolio management.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/risk-aversion\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Risk Aversion"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/78444b55b561e9abfb993836133a1251","name":"admin","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","caption":"admin"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/admin\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/DLKhsZvcD-c","og_video_type":"text\/html","og_video_duration":"3339","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-09-12T13:33:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/2252","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=2252"}],"version-history":[{"count":38,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/2252\/revisions"}],"predecessor-version":[{"id":59514,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/2252\/revisions\/59514"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=2252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=2252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=2252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}