ABSTRACT
This chapter considers uncertainty, risk and risk aversion, defined benefit retirement plans and commercial real estate investment in a mixed asset portfolio. Human behaviour reveals risk aversion across a large range of economic opportunities, and that is the case for most investment behaviour. Investment returns come with uncertainty requiring humans to make decisions that are based on limited information, differing personal circumstances or an incomplete understanding of investment products. The US Employee Retirement Income Security Act (ERISA) of 1974 was established to direct and limit investment adviser behaviour. ERISA required that defined benefit plan investment managers seek investment opportunities beyond investing in stocks and bonds, as stock and bond investments maintain a relatively high correlation; that is, they go up and down together, thus providing limited ability to minimise the risk of large loss in market downturns. The need to reduce portfolio variance is far broader than the regulatory requirements of defined benefit plans in the United States and internationally.
