A. Risk-aversion refers to an investor who will not consider risky assets only if they provide compensation for risks via a risk premium. When faced with two investments with similar expected returns but different risks, a risk-averse investor will prefer the investment with the lower risk.
In other words, a risk-averse investor is a rational investor.
However, a loss-aversion investor is an irrational investor. Why? Please see our next blog post's analysis of loss aversion.