Risk Aversion 😰

🧠 Psych - 34 / 100

Hey,

Today, We will be talking about Risk Aversion 😰.

What is it?

Our Human Behaviour to lower the uncertainty in situations where we are exposed to Uncertainty.

Example -

Wikipedia has a great way to put it:-

It is the hesitation of a person to agree to a situation with an unknown payoff rather than another situation with a more predictable payoff but possibly lower expected payoff.

Where does it occur?

Investors, Consumers tend to show this bias as they are often exposed to scenarios where the uncertainty rates are higher and they find it diffcult to calculate the stakes.

For example in stocks, funds etc. As per this bias, we would prefer to play safe in such situations.

Why do I need to know?

This Bias directly affects your decision making process. Because we don’t know consequences, we often make larger decisions or sometimes don’t prefer to play at all.

Reframing the situations, logical analysis and fresh perspective can help you to make better decisions.

Takeaways:-

1. Risk aversion is your ability to choose safety over uncertainty.

2. Calculated risks are always worth it even though it requires you to study all the ins and out before making the decision.

References & Studies:-

1. https://psycnet.apa.org/record/1988-03452-001

2. https://www.sciencedirect.com/topics/economics-econometrics-and-finance/risk-aversion

---

[Experiment] Has Psychological Insights & Biases from Psych benefitted you?

Let's say, in your personal or professional life.

• Yes..

• Somewhat.

• Nope.

Looking for previous issues? Take a look at Archives.

Support the newsletter by buying a coffee?