Risk Aversion

An agent who prefers a certain outcome to a risky outcome with the same expected return is said to be risk averse. The Utility-Based Valuation of Risk illustrates how risk aversion naturally arises for agents with concave utility functions. The mathematical basis for this result is Jensen's inequality.

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Classic Economic Models

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Arbitrage Pricing

Arbitrage Profit

Average Cost

Balance of Payments

Budget Constraint

Call Option

Concave Function

Consumer Surplus

Consumption Function

Convex Function

Deadweight Loss

Demand Curve

Econometrics

Economic Agent

Economic Model

Economics

Economics Textbook

Elasticity

Endogenous

Endogenous Technical Change

Equilibrium

Exchange Rate

Exogenous

Expectations Hypothesis

Federal Funds (Fed Funds) Rate

Fixed Exchange Rate

Floating Exchange Rate

Frictional Unemployment

Gross Domestic Product (GDP)

Income Effect

Income Elasticity

Indifference Curve

Interest Rate

Intertemporal Substitution

Jensen's Inequality

Macroeconomics

Marginal Cost

Marginal Product

Marginal Utility

Microeconomics

Monopoly

Optimizing Behavior

Perfect Competition

Phillips Curve

Price Elasticity

Producer Surplus

Production Function

Production Possibility Frontier

Put Option

Recession

Reservation Wage Rate

Risk Aversion

Structural Unemployment

Substitution Effect

Supply Curve

Taylor Rule

Technological Growth

Term Structure

Theory of the Consumer

Theory of the Firm

Unemployment Rate

Utility Function

Velocity of Money

Widget

Yield Curve