Modern Portfolio Theory
Risk Preference = willingness to accept possible declines in consumption. As wealth increases, risk tolerance rises in terms of the absolute amount of investments at risk. For example, a wealthy person can accept a loss of $1,000 more readily than a poor person.
Risk Preference = emotional reaction (pain) to loss exceeds the pleasure derived from a gain of the same amount. Losses are felt more strongly than similar levels of gains.
Risk Preference depends on objective factors, based on empirical research. The risk levels of other assets, such as human capital, with its associated background risk; real assets, both the amount and associated risk characteristics; and educational attainment have been found to be significant in the revealed preferences of risk tolerance for financial assets.