Question

What two factors should be considered before attempting to measure risk aversion?

Answer 1

Before Attempting to measure risk aversion, following two factors should be considered:

1 ) Estimating probabilities: It includes measuring the future events based on their possibility of occurrence. generally, the Probabilities are assigned based on past experiences.

2) Life tables and estimates: it includes the estimation of the amount of risk undertaken by the investors in their previous investment. By looking at their investment history and analyzing behavior, this table can be prepared.