Risk aversion is a concept that describes an individual's preference for a less risky outcome over a more risky outcome, when the two have the same expected benefit. For example, a risk-averse individual will prefer $50 for sure, rather than taking a bet with a 50 per cent chance of receiving nothing and an equal chance of receiving $100, although the expected payoff is also $50.
Different people have different levels of risk aversion. A person's risk aversion may also change over his lifetime due to factors such as age, experience, wealth, literacy and cognitive ability.
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