INCREASED RISK-AVERSION AND RISKY INVESTMENT

This article investigates the relationship between the size of investm ent in a risky asset and the degree of fisk aversion. The necessary an d sufficient conditions are established that permit the prediction of whether agents with differing degrees of fisk aversion will increase o r decrease investment in the risky asset. It shows, in particular, tha t when the marginal return to investment decreases (increases) with an improvement in the state of nature, greater risk aversion will induce higher (lower) investment.