Psychology

Psychology of Risk Aversion



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As one might expect, the philosophical concept known as "risk aversion" deals with evaluating how and why someone is predisposed to avoiding risks. For instance, most individuals have some risk aversion as it's necessary to survive. Common sense would dictate a person in good financial standing should not take 1/100 odds and bet their life against the prospect of winning a dollar. Alternatively, the rationality of investing in the stock market is more unclear. Even if weak economies, knowledgeable individuals can increase their earnings. However, the possibility of losing a significant amount may be too much for most individuals.

Risk aversion can apply to particular facets of an individuals life. Having previously done poorly in mathematics, an individual may be disinclined to pursue a mathematics course even if it will look good on their transcript. Rather, they believe it's more likely they will do poorly and create a negative result than succeed and gain an advantage. This self-confidence may be unjustified, however, as individual failings regularly bias future success cumulatively. A person fails once and loses confidence, and this lack of confidence lowers their success rate, and the pattern continues. Some people can even link their problems or experiences with dreaded subjects to childhood traumas regarding horrible teachers or embarrassing moments.

Unfortunately, a lack of risk aversion is also a problem in many areas. Particularly, casual relationships and low risk aversion are partially responsible for the spread of STDs. Additionally, individuals who use drugs may be prone to risks already and have their state of mind altered to facilitate an even more reckless personality while under the influence. In fact, low risk aversion has been associated with teenagers and the development into adulthood correlates with a lower propensity towards rash behavior. Whether this is cultural, genetic, or coincidental data is not entirely clear. Alternatively, a high risk aversion may lead someone to avoid engaging in social situations, taking small career risks, or even leaving the house (such cases may be related to or accompanied by anxiety or other issues). Risk aversion theoretically may have an optimal level, but it's yet to be determined.

While risk aversion in both extremes has negative impacts on society and its members, it is an interesting concept that warrants further analysis within the context of psychology, economics, and other fields. Discovering what motivates people to take certain risks, such as drunk driving, can enable society to utilize policies that more effectively deal with those issues.

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