Tashkent institute of finance department «state finance» presentation on the discipline “Finance” on the Theme

Theme 2.17. «Finance and risks»

Risk aversion and risk management

Copyright © 2020 Ye. А. Akhunova

• Risk aversion is a characteristic of a person’s preferences in risk situations. This is a measure of a person’s willingness to pay to reduce the risk to which he is exposed. Those who do not want to take risks, evaluating the compromise between the costs of risk reduction and the benefits of this, prefer a less risky option at the same costs.
• For example, if, on the whole, you are ready to accept a lower rate of return when making this or that investment decision, because in this case a more predictable rate of return is offered, then you are inclined to avoid risk. When choosing investment options with the same expected rate of return, people who tend to avoid risk choose the option with a lower degree of risk.

• We are dealing with a compromise between the benefits of eliminating the risk associated with the error in calculating the amount of food, and the costs that have to be incurred to reduce this risk.
• The process of making a compromise aimed at achieving a balance between the benefits of risk reduction and the necessary costs, as well as deciding what actions to do this (including abandoning any action) is called risk management).
• The adequacy of the risk management decision should be considered in the light of the information available at the time the decision was made.