Learning to be risk averse

Experimental learning that conforms to standard leaning models is shown to lead learners to favor less risky alternatives when possible outcomes are positive. This learning disadvantage for risky alternatives is likely to be quite substantial and persistent, particularly among relatively fast learners. Learning to choose among alternatives whose outcomes lie in the negative domain, on the other hand, leads to favoring more risky alternatives in the short run but tends to become risk neutral in the long run. Thus, the fact that human beings exhibit greater risk aversion for gains than for losses in a wide variety of situations may reflect accumulated learning rather than inexplicable human traits or utility functions. Some implications of an experiential learning interpretation of risk preferences are discussed.