Factor that influence the Risk Appetite and Preferences of Consumer

We can distinguish “risk appetite” which motivates traders’ actions, from “risk aversion”, which is a preference parameter hard-wired into agents’ characteristics. A trader’s risk appetite may change even if his preferences are unchanged. The reason is that risk taking may be curtailed by the constraints that traders operate under, such as those based on Valueat-Risk (VaR). In our dynamic asset pricing model, all active traders are risk-neutral, but they operate under Value-at-Risk (VaR) constraints. (Risk Appetite and Endogenous Risk by Jon Danielsson, Hyun Song Shin, and Jean—Pierre Zigrand on March 16, 2009).

Exogenously given preferences determine the market price (along with supply), the influence also runs in the other direction: The price is an inherently powerful contextual variable that determines expressed preferences even in the absence of a clear, explicit anchor. Ironically, though the most important component of the preference-stability assumption is that it holds when applied to changes in the economic (as opposed to other) environment, the economic environment may in fact influence expressed preferences most, and do so simply because it is often the most salient factor in economic decisions. (Price-Sensitive Preferences by Nina Mazar, Botond Koszegi, and Dan Ariely on February 11, 2010).

Posted by @samzlee ^^