5 Everyday Risk Aversion examples and How They Shape our Decisions

For instance, how many of us would search for a product on Amazon and go straight down to the reviews section to see what other people think?

This is one out of many risk aversion examples in out everyday lives, and it’s both interesting and useful to understand why we act this way.

“Losses loom larger than gains”

This insight from Kahneman and Tversky’s work helps explain why people are being ‘too cautious’ when making life decisions².

This blog post will dive into some real-life examples of risk aversion, showing you how this typical behavior affects our everyday choices, whether it’s about money, relationships or healthcare.

Key Takeaways:

Risk Aversion Shapes Everyday Choices: People always want to stay ahead and take control of their lives–they want to steer clear of potential losses. That includes all kinds of decisions that they make in their day-to-day lives–like career choices, everyday purchases or healthcare decisions. For instance, that’s why people are willing to buy insurance and extended warranties even though they cost a lot of money.

Perceived Safety Over Potential Gains: A lot of people choose stability and reliability over potential gains. That’s why people would choose a fixed deposit over the stock market, or choose a safe and traditional career path over a startup. However, that preference for safety often means sacrificing the chance for bigger rewards down the line.

Understanding Risk Aversion Empowers Better Decisions: A better understanding of how risk aversiveness plays a huge role in our day-to-day life would help us consumers to make much more accurate, and calculated decisions in the long run–leading to both personal growth and financial freedom.

Risk aversion examples in financial decisions

Buying insurance

The insurance business is entirely built around the idea of risk aversiveness.

People buy insurance because they want to ‘avoid risks’, and they are willing to pay for it.

During unexpected events, insurance helps cover the costs, so you don’t have to bear the financial burden alone.

“The challenge which society faces today is how to promote investments in cost-effective loss reduction mechanisms, while at the same time placing the burden of recovery on those who suffer losses from natural disasters”
Kunreuther, H. , 1996

So, the reason for buying insurance is to avoid the financial stresses of major expenses that could come out of nowhere. Whether it’s health, car or home insurance, the psychology behind these decisions is the same.

Buying insurance gives you peace of mind.

While being risk averse does have its advantages the decision to buy insurance might not always be rational. A lot of people decide to buy insurance, even though sometimes it’s statistically unlikely that a disaster would occur.

“The natural disaster syndrome” is a good example of this behavior.

Natural disaster syndrome consists of two major components³.

1. People have significantly less interest in financial protection before a disaster

2. People are willing to pay high costs for insurance right after a catastrophic event

In other words, people underestimate a disaster before it happens and overestimate future disasters right after a disaster is happened.

Choosing fixed deposits over stocks

Dinner conversations have changed quite a bit this year. Friends that, two years ago, would not stop talking about hot stocks, coins, and NFTs, are now talking about the amazingly high “guaranteed” fixed deposit rates they are getting at their banks.

Fixed deposits usually come with lower interest rates compared to stocks or mutual funds.

But, people often choose fixed deposits over stocks or mutual funds. Choosing fixed deposits is always safer compared to stocks or mutual funds because they are ‘volatile’ options — the outcome of mutual funds and stocks are more uncertain compared to fixed deposits.

risk averse example — Photo by Anne Nygård on Unsplash

So, It makes sense that risk averse people always go for the safer option, that is, fixed deposits.

There is an ongoing debate over whether ‘there is a connection between cognitive ability and risk aversiveness’. The evidence suggests that there is a connection. A recent study done on this hypothesis suggests that people with lower financial literacy tend to have a higher probability of being risk averse⁴.

Looking at these research outcomes with a more positive attitude, we do not necessarily have to choose the safer option. What we should focus on is to have the ability to assess our financial situations more accurately. When we can do that, it might make sense to be a risk seeker and buy the stocks that you always wanted to buy.

Hesitating to start a business

In simpler terms, everyone has access to the same risky opportunities, and the profits from running a business are theirs to keep. But not everyone handles risk the same way. In the end, the less risk-averse individuals (those who are okay with taking bigger chances) step up as entrepreneurs, while those who prefer more stability choose to work as employees.

While this does not necessarily mean that being an entrepreneur is better than being an employee, if someone is an employee and desperately wants to be an entrepreneur, it is safe to say that risk aversiveness is holding them back⁵ .

But why starting a business is risky?

It’s clear from the statistics that more than two-thirds of the startups never deliver a positive return to investors.

Research shows that about 70% to 75% of startups fail to give investors a positive return, which means they don’t make enough money to be profitable. Some studies even suggest that 9 out of 10 startups fail in the long run.

Why does this happen? Common reasons include:

Not finding the right market for their product.
Spending too much money too early.
Struggling with management or running out of funds.
Poor planning on scaling the business

This doesn’t mean startups are a bad idea—just that they require careful planning, adaptability, and patience. Strategies like testing ideas quickly, listening to customer feedback, and managing resources wisely can make a big difference. It’s all about learning from failures and improving along the way.

Risk aversion examples in society

Avoiding confrontations

Most people do not like conflicts, and they are willing to avoid conflicts at all costs⁶.

This behavior is a result of ‘the need to belong’

Need to belong in risk averse examples — Photo by Simi Iluyomade on Unsplash

The belongingness hypothesis is simply the idea that humans have a deep need to build and maintain meaningful relationships with others. To feel truly connected, we need two things:

1. Positive, regular interactions with a few people we care about.

2. Stable, long-term relationships where everyone cares about each other’s well-being.

In short, it’s about having a close-knit group where you share good times and support each other over time. This theory helps explain why we seek friendships and bonds that last and are emotionally fulfilling⁷.

When people don’t feel like they belong, it can lead to serious emotional problems. Feeling disconnected from others can make us feel down, and anxious, or even affect how we think and act. In fact, the need to belong is so important that it’s behind a lot of what we do and how we feel on a daily basis.

Research shows that not having strong, supportive relationships can really hurt our well-being and lead to things like stress or loneliness. This is why connection with others is such a key part of feeling happy and healthy.

So, people do not want to ‘take the risk’ of creating conflicts.

Avoiding conflict might seem like the easier choice, but it can actually hold you back from growing. Change, even good change, often comes with some discomfort or tension. By not confronting problems, you miss out on the chance to improve and grow. Growth happens when you face challenges head-on, and solving conflicts can make you stronger.

For instance, a study found that employees who faced and resolved conflicts effectively reported higher job satisfaction and better performance. This shows how confronting challenges, rather than avoiding them can lead to personal and professional growth⁸.

Next time you find yourself in a tough situation where you need to address a conflict, remember that working through it can lead to positive change. You’ll come out of it better, and you have nothing to fear but fear itself!

Staying in unhappy relationships

Sometimes, the fear of what might happen if we change or leave an unfulfilling relationship feels stronger than the discomfort of staying in it. We often stick with what’s familiar, even if it’s not making us happy, because the uncertainty of the unknown seems scarier than dealing with the problems we already know.

Research shows that the brain reacts strongly to uncertainty, and this anxiety can make us avoid taking risks, even when the current situation isn’t ideal. For example, people with anxiety may find it harder to face the unknown because their brains are more sensitive to unpredictable situations, leading them to stay in familiar but unfulfilling situations.

Studies suggest that people can be motivated to stay in unhappy relationships for the sake of their romantic partner⁹. So the average risk averse person would stay in the relationship even though that does not make them happy. It takes a risk seeker to break up this mental block and break free and it is, by all means, necessary.

Declining invitations

Social anxiety is a real issue for many people.

People do not want to take the risk of being embarrassed in front of other people. So the risk aversiveness kicks in when you remember you have to present something in front of an audience or you have to attend a social gathering where you do not know a single person¹⁰.

Social gatherings can be fun and bring people closer, but they also create moments where we might hold back because we’re scared of being judged or rejected. Even people who love being around others sometimes hesitate before doing something bold, like sharing a unique idea, telling a joke, or dancing in front of a crowd. No one likes the idea of feeling embarrassed or judged. These are the most common examples of risk aversiveness in our everyday lives.

In fact, these fears are so common, that scientists even have a name for it–spotlight effect¹¹.

surrounded by people risk averse example — Photo by Ryoji Iwata on Unsplash

The spotlight effect is the idea that we think everyone is paying way more attention to us than they actually are. In reality, most people are busy worrying about themselves, not what they’re doing! Another example is the “negativity bias“—our brains are wired to focus more on potential risks or bad outcomes, like being rejected, than on positive possibilities¹².

But here’s the good news: when we push past that fear and try anyway, we often end up feeling great. Whether it’s speaking up or trying something new, those moments can build confidence and show us that most people aren’t as critical as we fear. Also, they often create the best memories!

Risk aversion examples in health decisions

Opting for over-the-counter medication

Risk aversiveness plays a huge role in healthcare.

We are always in fear of what our health will be if we do not take the ‘best medicine’ available. We always want to be safer and in control.

For example, many people grab over-the-counter (OTC) medications instead of waiting to see a doctor. It feels like the better option because it’s fast and avoids the hassle of appointments, even if a doctor’s advice might lead to better long-term results.

This behavior is a classic example of risk aversion—avoiding uncertainty even when it might benefit us more. With OTC drugs, the certainty of immediate relief often outweighs the uncertainty of waiting for a diagnosis¹³.

Ironically, this behavior leads us to avoid doctors because we do not want to hear the ‘bad news’. In other words, we are passive risk seekers by actively being risk averse! Research shows that fear of bad news can make us avoid appointments, even though it could lead to worse health outcomes later. Our brains trick us into thinking short-term relief is better than dealing with uncertainty at present.

Understanding these behaviors can help us make smarter decisions—balancing quick fixes with long-term care when it matters most.

Avoiding second opinions

Another example of risk aversion in health decisions is how many people avoid seeking a second opinion after a medical diagnosis, even if they have doubts about the first one. This hesitation often comes from a fear of hearing worse news or uncertainty about whether another doctor will confirm or contradict the initial diagnosis¹⁴.

All of us assign weight to risk and benefit in our personal and professional lives. As individuals, we assess the risk of driving a little over the speed limit.
Risk Averse, William Marshall, MD

Research shows that people often avoid situations that might cause immediate emotional stress, like feeling anxious about getting conflicting advice from doctors. Instead, they stick with what feels safer at the moment, even if it means missing out on a better treatment or catching a mistake. For example, a recent study explains that people are too risk averse to cross reference their medical results, even if the results suggest that they should. This fear makes them choose short-term emotional comfort over long-term health gains¹⁵.

Healthcare providers can help by offering reassurance and explaining options in ways that make patients feel more comfortable and confident. By addressing fears and showing empathy, they can help reduce the stress or hesitation tied to making health decisions. Simple, clear communication can go a long way in easing concerns and encouraging people to make choices that benefit their long-term health.

Avoiding Strenuous Exercise

Risk aversiveness plays a crucial role in athletics.

Some athletes, especially after an injury are reluctant to participate in any physically stressful activities. This is especially a common risk averse example among high-performance athletes because so many things are at stake when someone plays a game at the elite level.

When athletes get injured, they don’t just face physical challenges—they also deal with mental struggles like frustration, fear, or even self-doubt. These responses can impact how well they stick to their rehabilitation programs and how quickly they recover¹⁶.

Personal factors like an athlete’s motivation, personality, and sense of self-efficacy (their belief in their ability to succeed) play a big role in how they handle injuries. For example, an athlete who is optimistic and confident is more likely to follow their rehab plan, even when it’s extremely tough. On the other hand, someone who’s risk-averse might avoid pushing themselves, eventually limiting themselves to overcoming their own fears.

Rehabilitation isn’t just about physical exercises—it’s about addressing these psychological barriers too. With proper support, realistic goal-setting, and encouragement, even risk-averse athletes can build the confidence to fully engage in their recovery process.

Risk aversion examples in career choices

Choosing job stability over passion

Choosing a career path where nothing is certain is always a cumbersome thought.

For instance, a Gallup study found that only 34% of U.S. employees are engaged in their jobs, with many opting for positions offering security rather than fulfillment. Another study by the Harris Poll highlighted that 47% of older millennials regret their career choices, often citing financial concerns and a preference for stability over passion.

These stats show how risk aversion plays a big role in career choices. Many people pick stable jobs because they value a steady paycheck and financial security over chasing a career in something they’re passionate about but might feel uncertain about. It’s understandable—reliable income often feels like the safer bet compared to diving into something unknown, even if it could be more fulfilling in the long run.

Reluctance to negotiate salaries

One of the examples of risk aversiveness in the workplace is people’s reluctance to negotiate for salaries. People do not want to take the risk of demanding a higher salary even though it’s necessary and logical to do so. The degree to which people take such risks is also a function of gender.

job salary example of risk aversiveness — Photo by M Jahid on Unsplash

A recent study showed that women and men approach job searches differently, mainly due to differences in how they handle risk¹⁷. Women tend to accept job offers earlier because they are more cautious about uncertainty. They’re often quicker to settle for a position to avoid the stress of continuing the job search. On the other hand, men tend to wait longer, feeling more confident that a better offer might come later, even though this can sometimes lead to accepting lower-paying jobs over time.

These different approaches that men and women take to contribute to the ‘gender pay gap’. This example of risk aversion shows how people’s attitudes toward uncertainty shape their career choices and long-term earnings¹⁸.

Sticking to Conventional Career Paths

We already covered why people tend to choose a job instead of entrepreneurship. This section discusses a bit narrower example of the same topic.

Lots of people avoid unconventional career paths because they think they are too ‘risky’. Society tends to push their younger generation towards stable jobs like law, medicine, or finance, where the paychecks are pretty much guaranteed upfront. These steady jobs give a sense of security, both in income and future job prospects. On the flip side, unconventional careers—like working in the arts, starting a business, or freelancing—are often viewed as uncertain, with no guarantee of success¹⁹.

Take, for instance, someone who chose to take a bank job instead of pursuing a career in history and art. It’s not that they don’t have a talent for it; they just worry about the ‘possible’ future financial ups and downs that can come with being an artist.

Also, societal norms and family expectations help shape these decisions. A lot of people feel pressured to pick safer career paths that offer long-term stability and respect, even if their minds are somewhere else²⁰. This can lead them to pick job security over personal happiness and might even make them miss out on creative or entrepreneurial chances that could make their lives much better.

Don’t start a startup just to look cool, or you think this is a cool lifestyle. It’s not a cool lifestyle. I got a lot of grey hair now and I didn’t have any grey hair before. But I would not trade it for anything else.
Carl Pei, CEO of the ‘nothing’ company

On the bright side, studies show that being risk seeking in your career can often pay off for those who are willing to step out of their comfort zones and willing to take a chance²¹. People who go for unconventional paths often say they feel more fulfilled in their lives, even if they have faced some bumps down the road.

As more people dive into non-traditional jobs, especially in creative fields, the idea of ‘what it means to risk averse?’ in these careers might start to change, making them look like more attractive options²².

In conclusion, risk aversion impacts career choices to a greater extent. Many people stick to safer, conventional paths because they value that security over unpredictable outcomes. But as awareness grows around the benefits and challenges of non-traditional careers, more people might start viewing these paths as less risky and a lot more satisfying.

Risk aversion examples in everyday purchases

Fear of trying out new brands

One of the risk aversion examples in day-to-day life is ‘brand loyalty‘

When you are buying a new phone, would you buy that phone with an unfamiliar brand name that is said to be really good, or would you pick a new phone of the same brand that you have been using for the last 5 years?

Chances are that you would go for the brand you knew even though sometimes you know for a fact that there are some other good options but from a new brand.

This is what’s known as ‘brand loyalty’: buying the product and services from the same brand based on the idea that they provide higher quality and better services than any of their competitor. Brand loyalty is not necessarily dependent on price.

risk aversiveness examples sticking with default choices — Photo by Priscilla Du Preez 🇨🇦 on Unsplash

When you buy a product from a brand you already trust, you’re pretty sure it will meet your expectations. With a new brand, though, there’s uncertainty. What if the product doesn’t work as well? What if it’s a waste of money? These “what ifs” make people hesitant to try something unfamiliar.

But being loyal to a certain brand does not necessarily mean that you’re getting the best value for your money. How can you break the mould and choose what’s best for you without the influence of brand loyalty? Both the contributions from the customer and the brand should be involved to make this work. Customers should be able to ‘open’ for novel offers. At the same time, brands should be able to come up with quality products and ‘convince’ the customer that it’s worth changing their preference because what they are getting from the new brands is much better²³.

How to make that sense of ‘security’ from the brands’ end?

They can offer free samples, money-back guarantees, or positive customer reviews to reduce the fear of trying something different²⁴.

Making decisions based on customer reviews

How many of us would search for a product on Amazon and go straight down to the reviews section to see what other people think?

‘Word of mouth’ plays a huge role in purchasing decisions²⁵.

A survey run by Global Newswire shows that 95% of consumers read online reviews before making a purchasing decision and 58% of them said that they would be willing to pay more for a product with comparatively good reviews.

Because consumers are too risk averse, there are even dedicated websites for product reviews.

Sometimes, customer reviews are necessary for making a purchasing decision. But where should we draw the line? Because we can be too risk averse to make purchase decisions completely based on other people’s opinions. Because ‘people’s opinions are always subjective‘.

Paying for extended warranties

People are paying more money for the safety and security of the product than the product itself.

It’s not just about practicality—extended warranties often offer a sense of security, especially for those who worry about unexpected costs.

Rightfully so, evidence suggests that sometimes it’s worth paying more for product safety. 20 million Americans are injured each year at their homes and those injuries are caused by their consumer products²⁶.

Risk averse individuals would buy extended warranties for peace of mind, even when the items they’re purchasing have a low likelihood of breaking.

Nowadays, people tend to think about warranties as a signal of product quality. And the companies seem to capitalize on this idea. For instance, the warranties for cars have gone up significantly over the past decade. Despite that people pay more for these extended warranties, the statistics suggest that the market share is going up(Consumers’ perception of a warranty as a signal of quality: An Empirical study on the automobile industry BUSIK CHOI).

But we, as consumers have to make sure not to overspend on warranties. We should be able to gauge ourselves and understand what are low-risk items and what are high risk items. It will help the consumers to assign a reasonable price on specific products.

Final thoughts

Risk aversion plays a huge role in how we make decisions in our everyday lives, whether it’s choosing a career or looking after our health. Taking a moment to recognize when and how it affects our choices can help us make more balanced and informed decisions.

How to do see the balance between being risk averse and being a risk seeker? We’d love to hear your experiences in the comments below!

5 Everyday Risk Aversion examples and How They Shape our Decisions

Key Takeaways: