Question

If riskier assets generate higher returns, explain the role of risk aversion in long-run economic growth.

Answer 1

It is related behavior economy of human,where they try to minimize risk or uncertainty In economics and finance. Through risk aversion one can reduce uncertainty of return or voltality in price fluctuations or long term risk management.

the investor who chooses the preservation of capital mean that higher return involved higher risk so investors tried to preserve capital over greed of higher potential risk or return..

A volatile investment can make you rich or devour your savings,while a conservative or preservative investment of capital will grow slowly and steadily over time Or long run economic growth.

Low-risk means stability with a near-zero chance that any of the original investment will be lost and thus advantageous in long run economic growth.