"[T] he literature of risk aversion and risk preference [is] one of the richest sources of ad hoc assumptions con-cerning tastes....[N] o significant behavior has been illuminated by assumptions of differences in tastes....[Such theories] have been a convenient crutch to lean on when the anal-ysis has bogged down.... They give the appearance of considered judgement, yet really have only been ad hoc arguments that disguise analytical failures."-George J. Stigler and Gary S. Becker (1977 p. 89)

Assumptions of risk aversion in modern economics are pervasive, and economists who substitute risk neutrality often do so with an apology. This is particularly true for contract theories, like the principal-agent model. Despite the theoretical prominence of risk aversion, empirical contract studies tend to ignore risk preferences and focus exclusively on transaction costs, thus stressing specific incentives, enforcement costs, and transaction-specific assets. Accumulated evidence confronting risk-sharing and transaction costs-covering such topics as franchising, gold mining, sharecropping, and timber-actually favors the transaction-cost framework. This paper examines risk preferences in contract theory and the evidence failing to support theories relying on risk-averse agents.