fatvegan

In economics and accounting they talk about being risk-averse and risk-neutral (there's also risk-loving, but they don't talk about that much). The definition of risk-neutral is if you're willing to take bets which, on the odds, would make you break even. So someone who has $1m is risk-neutral if they would stake it on a 50-50 chance of getting $2m or of getting nothing. Which struck me as odd.

Our lecturer told us that most people are risk-averse, and they act a bit like that is a silly thing. I couldn't put my finger on why I disagreed, but I worked it out this morning. The next dollar you earn is always worth a tiny bit less than the last dollar you earned. Looking at large amounts, my first $1m is worth far more than my second $1m. That's an economic law-rule. So someone who would take the bet I described above is stupid. These definitions of risk-averse and risk-neutral are only reasonable when your dealing with infinite or extremely large amounts of money. If you've got $100m then maybe that bet would be neither good nor bad.

Maybe those terms developed because mathematicians seem to like large numbers so much. But I don't like that our terminology assumes that people are enormously wealthy. Especially when it's terminology that disparages a non-wealthy person when they're making a very sensible choice not to accept a certain risk. I can imagine some investment banking wanker using the term risk-averse (and using it "accurately") on some poor old granny, and convincing her that she should accept some investment deal.