Assessment | Biopsychology | Comparative | Cognitive | Developmental | Language | Individual differences | Personality | Philosophy | Social |
Methods | Statistics | Clinical | Educational | Industrial | Professional items | World psychology |

Other fields of psychology: AI · Computer · Consulting · Consumer · Engineering · Environmental · Forensic · Military · Sport · Transpersonal · Index

In economics and behavioral finance, a risk lover is a person who has a preference for risk. While most investors are considered risk averse, one could view casino goers as risk loving. If offered either €50 or a 50% chance of each of €100 and nothing, a risk seeking person would prefer the gamble even though the gamble and the sure thing both have the same expected value; in fact, the risk lover would be indifferent to accepting a less than 50% chance of €100 versus the sure €50 (how much less would depend on how risk loving the person is). The risk lover would also be indifferent to a 50% chance of each of €X and nothing versus the sure €50, where €X is some amount less than €100 (again, how much less would depend on how risk loving the person is).

The risk-loving behavior can be observed in the negative domain x<0 for Prospect theory value functions, where the functions are convex for x<0; while the functions are concave for x>0.

The risk loving utility functionEdit

Choice under uncertainty is often characterized as the maximization of expected utility. Utility is often assumed to be a function of profit or final portfolio wealth, with a positive first derivative. The utility function whose expected value is maximized is convex for a risk lover, concave for a risk averse agent, and linear for a risk neutral agent. Its convexity in the risk loving case has the effect of causing a mean-preserving spread of any probability distribution of wealth outcomes to be preferred over the unspread distribution.

See alsoEdit

This page uses Creative Commons Licensed content from Wikipedia (view authors).

Ad blocker interference detected!

Wikia is a free-to-use site that makes money from advertising. We have a modified experience for viewers using ad blockers

Wikia is not accessible if you’ve made further modifications. Remove the custom ad blocker rule(s) and the page will load as expected.