Strategic Risk Taking: A Framework for Risk Management

Chapter 3. What Do We Think About Risk?

In Chapter 2, “Why Do We Care About Risk?,” we presented the ways in which economists go about measuring risk aversion and the consequences for investment and business decisions. In this chapter, we pull together the accumulated evidence of how individuals perceive risk. First, we look at experimental and survey studies that have focused on risk aversion in the population; then we turn our attention to what we can learn about risk aversion by looking at how risky assets are priced. Finally, we look at the explosion of game shows that require contestants to make choices between monetary prizes, thus providing fertile data for studies of risk aversion.

In the process of looking at the evidence on risk aversion, ...