CIMA P1 Syllabus D. Dealing With Risk And Uncertainty - Attitudes to risk - Notes ^{2 / 6}

Here we look at the decision-maker’s attitude to risk.

There are 3 possible attitudes:

1. Risk Averse - avoid risk

   Risk-averse are willing to accept a lower level of return.

   A risk averse investor would want to consider standard deviations as it tells them more about the risk they are taking on in the decision they are making and can help them avoid high risk choices

   - They would choose the maximin decision

2. Risk Seeking - seek risk

   Those that are risk-seeking favour higher risks and higher returns

   They would choose the maximax decision

3. Risk Neutral - ignore risk

   They may choose the highest expected value.

   Normal distributions give information about probabilities but not about risk so would be useful to risk neutral investors