Idea in economics and management science that rational agents in an economy act in their own interest with respect to risk. The definition of a risk averse state is that the entitity will reject a bet whose probable outcome is a loss. For example I would not bet more than a dollar on a chance to win a dollar or less based on the toss of a (fair) coin. A risk prone state is defined as one where the agent will take that bet. In theory a risk-neutral agent is one who will take any bet with odds and stakes even (e.g. betting 10 cents on a 1/10th chance at winning a dollar).

In practice most people and organizations risk behavior is subject to a Risk averse utility function (rauf). This is the observation that most individuals and organizations become more risk averse as the stakes get larger.

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