The importance of risk-aversion as a measurable psychological parameter governing risk-taking behaviour

A utility function with risk-aversion as its sole parameter is developed and used to examine the well-known psychological phenomenon, whereby risk averse people adopt behavioural strategies that are extreme and apparently highly risky. The pioneering work of the psychologist, John W. Atkinson, is revisited, and utility theory is used to extend his mathematical model. His explanation of the psychology involved is improved by regarding risk-aversion not as a discrete variable with three possible states: risk averse, risk neutral and risk confident, but as continuous and covering a large range. A probability distribution is derived, the "motivational density", to describe the process of selecting tasks of different degrees of difficulty. An assessment is then made of practicable methods for measuring risk-aversion.