Thursday, January 03, 2008

Risk Aversion II

So in the search for an answer to the question,

How much of risk aversion / risk taking is an individual perceptual issue and how much is as a result of cultural factors?
I would just like to say here and now that I do realise that separating the individual perceptual factors from cultural ones is a little like platting fog, however having engaged in similar processes before the process will offer up some interesting insights about risk aversion.

My first port of call was wikipedia - OK I'll admit not the most academic of starts, that comes next but in reality it's not a bad place to start when you see who some of the contributors are.

The first interesting thing is that the opening paragraph firmly gives an individual explanation:

... related to the behaviour of consumers and investors under uncertainty. Risk aversion is the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain, but possibly lower, expected payoff.

This to me is at first sight an individual explanation. The interesting thing here for me is the link being made with uncertainty. A causal relationship is being suggested - risk aversion is associated with uncertainty. Hmmm. Lets see.
Anyway back to the question just because there appears to be an individual explanation for risk aversion it doesn't give an indication as why the individual might react to uncertainty like this. How much of this is innate and how much is socialised? Do we naturally react to uncertainty by becoming risk averse?
Ok I'm off to plat more fog....

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