Which of the following is not an example of risk aversion? (a) You lock your garage when you have...

Question:

Which of the following is not an example of risk aversion?

(a) You lock your garage when you have expensive workshop tools.

(b) You are more careful when you buy a more expensive car.

(c) Individuals tend to gamble more with their money when the future is uncertain.

(d) You only go swimming when the lifeguard is on duty.

Behavioural economics

Behavioural economics is a new development in applied economic sciences, it assumes that fundamental assumptions are wrong individuals are not risk averse, they are loss averse instead they love risk when their is no possibility of loss while they hate risk when their is a possibility of loss.

Answer and Explanation:

Risk aversion simply means that the people hate risk, and the only option which doesn't indicate risk averse is C, as the individuals are taking more and more risk with their money. Risk aversion is the fundamental economic assumption however it is not working today hence new models have emerged like behavioural economics.


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