risk seeking

In accounting, finance, and economics, a risk-seeker or risk-lover is a person who has a preference for risk. While most investors are considered risk averse, one could view casino-goers as risk-seeking. A common example to explain risk-seeking behaviour is; If offered two choices; either $50 as a sure thing, or a 50% chance each of either $100 or nothing, a risk-seeking person would prefer the gamble. Even though the gamble and the "sure thing" have the same expected value, the preference for risk makes the gamble's expected utility for the individual much higher. The Utility Function and Risk-Seekers Choice under uncertainty is when a person facing a choice is not certain of the possible outcomes or their probability of occurring. The standard way to model how people choose under uncertain condition, is by using expected utility. In order to calculate expected utility, a utility function 'u' is developed in order to translate money into Utility. Therefore, if a person has '' money, their utility would be . This is explored further when investigating potential "prospects". A prospect, in this context, is a list of expected payoffs and their probabilities of occurring. A prospect is summarised using the form; The overall expected value of the prospect (A) is subsequently expressed as;