Final answer:
A risk averse investor would prefer positive skewness because it has potential for higher returns with lower risk of significant losses. Investment decisions balance the rate of return with the associated risk, where higher risks accompany the potential for higher returns.
Step-by-step explanation:
When considering investment choices, a risk averse investor is someone who prefers to minimize risk, even if it could mean accepting lower returns. Given the options of negative, zero, or positive skewness, a risk averse investor would typically prefer positive skewness. This preference is because positive skewness in the distribution of returns signifies that there is greater potential for higher returns as compared to negative skewness, which indicates a greater potential for extreme negative returns. Essentially, positive skewness means that the investment is far less likely than a symmetric or negatively skewed distribution to yield significant losses.
Furthermore, the rate of return and risk are critical factors in making investment decisions. Investors need to balance the tradeoff between the possible returns and the risk of potential losses. Bank accounts, with very low risk and returns, are less attractive to those seeking higher returns, whereas stocks, despite being riskier, could offer higher average returns compensating for the risk involved.