By W. V. Harlow, Keith C. Brown
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Additional resources for The Role of Risk Tolerance in the Asset Allocation Process: A New Perspective
51 The Role of Risk Tolerance one pair of bets) will be chosen at random by drawing a ball from a bingo cage. The bets in the chosen item will then be played. You will be paid an amount depending upon your decision and upon the outcome of the bet in the chosen item. Any amount you win will be added to your earnings, and any amount you lose will be subtracted fromyour earnings. If on the chosen item you indicated that you did not care which bet was played, then your choice will be determined by a coin toss.
Additional details of this procedure are discussed in Chapter 3. 7Thevalue of rpis unique and is determined numerically such that it satisfies: pA(wAIrP - (1 - PA) ( 1 ~ ~=1P) ~ ( w- ~(1 ) pB) ~ (I~gl)~. The Role of Risk Tolerance A New Perspective of Risk Aversion 3. A New Perspective of Risk Aversion As discussed in Chapter 1, our present understanding of investor risk aversion and its determinants may best be described as qualitative in nature. Because of the complex nature of observable human behavior, we have only been able to assess broad characteristics that seem to delineate classes of investors.
This study has reviewed and extended what is presently known about the way investors form their preferences in the face of uncertain economic conditions. Our survey of existing risk-tolerance assessment techniques showed that a great deal of effort has gone into characterizing the physiological and psychological makeup of the investor. Despite there being little agreement within the money management profession on the proper method for deploying this knowledge, a number of general associations have been established.
The Role of Risk Tolerance in the Asset Allocation Process: A New Perspective by W. V. Harlow, Keith C. Brown