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Perceived Risk–Return
Relationship of Investments
and Other Risky Actions
Joanna Sokolowska
INTRODUCTION
In the last four decades, it has been reported in many studies that people perceive risk and return as
negatively correlated. For example, Shefrin (2001) argues that investors expect higher returns from
safer stocks. Such reasoning contradicts basic assumptions in theory of decision-making, economy,
and nance. A positive relationship between risk and return lies at the heart of these theories. It is
assumed that decision makers should think about the expected return and variance of returns (or
other measures of risk) and make their choi ...