Risk averse individuals prefer less risky sources of income or investment. This individual will sacrifice some level of expected return in order to reduce the possibility of a loss.

Risk preferring individuals are characterized as more adventuresome with a preference for more risky business ventures. Risk preferrers will select the alternative with some probability of a higher income. This person likely has a greater risk bearing ability.

The risk neutral person is the limiting case between risk averse and risk preferring individuals. This person will have acceptable levels of risk bearing ability such that large losses are not of concern but at the same time, achieving the highest outcome is not the focus either.