Risk Appetite or Volatility Appetite?
Over at “Not Bad For A Cubicle,” Thurston (who is always worth reading) manages to tickle a pet-peeve of mine in “A super-size risk appetite?” No rational business has a risk appetite. They accept risk. They may even buy risk in fairly explicit ways (some financial derivatives) if they think that those risks are mis-priced because of either asymmetric information or different risk models. No rational person has a risk appetite. Some rational people have a thrill appetite, which may include elements of risk taking. Gamblers, extreme sports devotees and idiots may all do things in search of a thrill that includes a risk of serious injury or death. That risk may even increase their thrill, but what they’re seeking is the thrill, and they take risk as part of that package.
If you think you have a risk appetite, I have a simple game for you. We flip a coin. If it lands heads, you give me a dollar. If it lands tails, you may choose to play again. This is pure risk. I’ve removed any possible gain. Feel free to play, I’ll send you my address.
The picture is NelC’s “My Lucky Dice.”
[I’ve responded to some of the comments at More on risk tolerance“.]