The fact that we observe a trade-off between risk and return is puzzling to economists, because that observation conflicts with the notion that most people are risk averse.

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The observation of a trade-off between risk and return is not puzzling to economists; it aligns with the notion that most people are risk averse. Risk-averse individuals require higher returns to compensate for taking on additional risk, which explains the observed trade-off.

The Fact That We Observe a Trade-Off Between Risk and Return