risk aversion
The concept of 'risk aversion' plays a significant role in decision-making, particularly in finance and economics, where individuals and organizations often weigh the potential risks and rewards of various options.
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Definition
C1Economics
(academic, technical)The preference for certain outcomes over uncertain ones, even if the uncertain outcomes could potentially be more rewarding.
Example
- Investors with high risk aversion are more likely to choose bonds over stocks.
- Risk aversion can influence economic policies and individual investment strategies.
C1Psychology
(academic)A behavioral trait where individuals avoid uncertainty and potential losses, favoring safer and more predictable options.
Example
- People with high risk aversion may avoid extreme sports.
- Risk aversion can affect everyday decisions, like choosing a stable job over a high-paying but unstable one.
C1Finance
(technical)The inclination to avoid financial decisions that carry a higher chance of loss, even if they also offer higher potential returns.
Example
- Due to risk aversion, many retirees prefer fixed-income investments.
- Risk aversion often leads to a diversified investment portfolio to minimize potential losses.
Similar
Terms that have similar or relatively close meanings to "risk aversion":