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Risk Preference: Empirical Evidence and Its Implications for Capital Budgeting

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Risk, Capital Costs, and Project Financing Decisions

Part of the book series: Nijenrode Studies in Business ((NSIB,volume 6))

Abstract

Finance is a subject that must inevitably deal with decisions that involve choices from risky alternatives in a wide variety of settings—for example, choices of investment portfolios or selections of capital assets. In order to develop normative and predictive models for choice problems such as these, assumptions about the risk preference of individual decision makers have been necessary. The traditional assumption made about risk preference is that individuals are uniformly risk averse. In its strongest form, the assumption of risk aversion has been translated into the proposition that individuals choose between risky alternatives on the basis of mean and variance (or semivariance) and that individuals are averse to risk as measured by variance (or semivariance). In a weaker form, the assumption of risk aversion implies that the utility function of individuals is concave in terminal wealth.

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Author information

Authors and Affiliations

  1. University of Florida, USA

    Roy L. Crum

  2. Duke University, USA

    Dan J. Laughhunn & John W. Payne

Authors
  1. Roy L. Crum
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  2. Dan J. Laughhunn
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  3. John W. Payne
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Editor information

Editors and Affiliations

  1. The Netherlands School of Business, The Netherlands

    Frans G. J. Derkinderen

  2. University of Florida, USA

    Roy L. Crum

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© 1981 Martinus Nijhoff Publishing

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Crum, R.L., Laughhunn, D.J., Payne, J.W. (1981). Risk Preference: Empirical Evidence and Its Implications for Capital Budgeting. In: Derkinderen, F.G.J., Crum, R.L. (eds) Risk, Capital Costs, and Project Financing Decisions. Nijenrode Studies in Business, vol 6. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-8129-4_2

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  • DOI: https://doi.org/10.1007/978-94-009-8129-4_2

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-94-009-8131-7

  • Online ISBN: 978-94-009-8129-4

  • eBook Packages: Springer Book Archive

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