Individual attitudes towards risk A risk neutral person –is only interested in whether the odds will yield a profit on average A risk-averse person –will refuse a fair gamble i.e. one which on average will make exactly zero monetary profit A risk-lover –will bet even when a strict mathematical calculation reveals that the odds are unfavourable Risk and insurance Risk-pooling –works by aggregating independent risks to make the aggregate more certain Risk-sharing –works by reducing the stake By pooling and sharing risks, insurance allows individuals to deal with many risks at affordable premiums.