Generic discussion of risk tolerance and human capital without specific actors

Risk tolerance might be anything in any individual. As a norm, it tends to bea function of age, gender and wealth. Effects of age and gender are better understood. Teens and young adults, particularly males, seem readiest to take chances. Prison populations and medal of honor rolls feature young males. Part of the explanation, | think, is biologist R. A. Fisher’s sex ratio theory of 1930, or equally Bob Trivers’ differential investment theory of 1971. Young males show greatest variance in reproductive prospects. Females are almost always assured of a few offspring. Young males might leave none or many. Nature arranges tournaments or displays to give fitter males the advantage. Another reason is that the young, of either sex, have most time left to outride downswings. The older we get, the more risk-averse. Some businesses and assets are inherently riskier than others. Nerf balls are safer than hand grenades. But | prefer to look past the asset owned to the owner. We tend to own assets suited to our risk preferences. And we tend to operate it as safely or riskily as we like. That is true particularly of human capital, although it was first designed according to our parents’ goals rather than ours. Human capital is probably the most versatile asset, even so, and is adapted to our purposes rather than theirs. We make it as risky as we choose. The risk-averse can become florists or Trappists. Risk lovers can try bullfighting or skydiving. What does that tell us about the relative risk of the factors? Human capital is owned disproportionately by the young. We own very little physical capital, legally or in practical effect, until maturity. Pay at first is barely enough for survival. We accumulate it gradually as pay rises with age, and then deplete it in provision for the young and in our own retirement. Since physical capital is owned disproportionately by the older and more risk-averse, and human capital the contrary, human capital figures to be higher on average in risk and return. Chapter 2: Fast Forward 1/06/16 25 HOUSE_OVERSIGHT_010965