Starring on the indifference curves for different types of risk preferences I ask myself why the risk seeking investor would be indifferent between an investment on the far left of his indifference curve (an investment that would not provide any risk but a specific amount of return) and an investment on the far right of the indifference curve (so an investment that provides him with a lot of risk while a lower return can be expected). As to my understanding a risk seeking investor loves the risk so why does an investment with lower risk provides him the same utility as an investment with higher risk? Is it because risk seeking investors also get some utility from expected return? So while the risk seeking investor get's a higher value from risk that does not mean he's getting no value from expected return. Other than that I couldn't explain the form of the indifference curve and would appreciate any help.

Indifference curves for different risk types


1 Answer 1


Is it because risk seeking investors also get some utility from expected return?

It is a common assumption that investors invest to get returns, so in this good space returns are indeed a "good", not a "bad".

  • $\begingroup$ Thank you very much. So this simply means that while the risk averse investor sees risk as a pain and only gets his utility from returns, the risk seeking investor gets his utility from both: risk and return? Does this also imply that the risk loving investor gets a higher utility from risk than he gets from return? $\endgroup$
    – xxgaryxx
    Sep 16, 2021 at 8:17
  • 1
    $\begingroup$ @xxgaryxx I think it only implies s/he gets a positive utility from risk $\endgroup$ Sep 16, 2021 at 8:20

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.