Risk aversion is a behavioral tendency where individuals prefer a sure outcome over a gamble with a higher or equal expected value. This psychological inclination stems from how people perceive probabilities, often leading them to overweight certain outcomes while underweighting others. Consequently, individuals may reject certain gains for the sake of avoiding potential losses, resulting in risk-seeking behavior in loss situations and risk-averse behavior in gain situations.
A well-known example of risk aversion is in the 1980 presidential election, where voters expressed a preference for the nominated candidates who promised stability and safety, despite the potential for higher rewards from more progressive candidates. Many opted for the assurance of a conventional candidate rather than the unpredictable outcomes of a gambled change in leadership.
To counteract risk aversion, individuals can practice reframing their perspective on potential losses and gains, focusing on long-term benefits rather than short-term uncertainties. Additionally, setting clear, quantifiable goals can promote more calculated risk-taking.