Risk should be captured in the standard deviation though. My thinking for 'should' is that faced with 2 options 1 risk free the other with a 50% failure rate,

Risk should be captured in the standard deviation though. My thinking for 'should' is that faced with 2 options 1 risk free the other with a 50% failure rate, you would rationally go for the risk free option if they both yielded the same income. Even if the yield on the risky option were double it still isn't rational to go for that investment, why spend the years fretting when you can go for the risk free option for the same outcome. So clearly a risk premium is required to entice people into those riskier investments.