Question

What is risk aversion? How does it contribute to the American consumer's decision-making ability?

Answer 1

Risk aversion is an investment strategy that avoids risky investments such as volatile stocks and invests in Government Bonds, CD's, Treasury Bills etc. The reward is lower but so is also the risk.

Answer 2

Risk aversion is the individual feeling of each investor regarding the risk of an investment.

Step-by-step explanation:

Risk aversion is the individual feeling of each investor regarding the risk of an investment. It is he who makes the investor give up good opportunities for profitability because he fears the risk of losing part of his applied finances and, thus, suffering a loss. In a way, all investors are risk averse. After all, the risk involved in an investment represents the chances of it not working out and generating losses - and losing money is something that nobody wants.

Risk aversion makes American consumers more cautious when using their money. These consumers prefer to do more research and ask for opinions before investing in something.