A fair gamble on average yields zero monetary profit.

A risk-neutral person is interested only in whether the odds yield a profit on average. A risk-averse person will refuse a fair gamble.

A risk-lover bets even when the odds are unfavourable.

People’s tastes exhibit a diminishing marginal utility. Successive equal rises in consumption quantities add less and less to total utility.

Risk pooling aggregates independent risks to make the aggregate more certain.

Risk-sharing works by reducing the stake.

Moral hazard is the use of inside information to exploit the other party to a contract.

Adverse selection occurs when individuals use their inside information to accept or reject a contract. Those who accept are not an average sample of the population.

Dividends are the regular payments of profit to shareholders.The capital gain (loss) is the rise (fall) in the share price while it is held.

Diversification pools risk across several assets whose individual returns behave differently from one another.

An efficient asset market already incorporates existing information properly in asset prices.

A spot market deals in contracts for immediate delivery and payment. A forward market deals in contracts made today for delivery of goods at a specified future date at a price agreed today.

Hedging is the use of forward markets to shift risk on to somebody else.

A speculator temporarily holds an asset in the hope of making a capital gain.