What is risk aversion?
Risk aversion is the behaviour of consumers and investors when they come across a deal or bargain. They avoid risk buy going for the investment when they are most certain they'll get it. They would want to invest in something with no risks and a low returns and not something with high risks and high returns. For example, if I said you could defiantly have $50, or you could have $100 if they coin I flip lands on heads but if it lands on tails you get nothing. Consumers and investors would go for the less risky alternative so in this case, they would take the $50.
How is the stock market effected by risk aversion?
Risk aversion can effect the stock market because people will want to buy stock will lower risks and low returns than they would higher risks and high returns. Both have their flaws. The Low risk option would take a longer time to get your income and the high risk option is too "risky".
