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Risk Aversion

Actualizado: feb 18

Refers to the preference for values with low volatility. Risk-averse people tend to prefer outcomes with a reduced level of risk instead of more risky ones, even when the latter are associated with higher profitability (economic or non-economic). Individuals can be classified as risk averse, risk neutral or even risk loving depending on their level of risk aversion. Experiments assessing risk preferences indicate that most people are indeed risk averse, and women tend to be more risk averse than men. Interestingly, for example, experimentally-measured risk preferences can predict employment status: self-employment seems to require some degree of risk loving.

Should we measure this preference in the workplace? The answer is yes, but factors like position, role and sector matter. For instance, people who work in Innovation Departments need to create and invent, often launching disruptive ideas, which can be a risky endeavor. Thus, if our assessment shows that the least productive people are the most risk-averse, we should probably make the work environment “safer” to encourage them to be disruptive.

Weber, E. U., & Johnson, E. J. (2009). Decisions under uncertainty: Psychological, economic, and neuroeconomic explanations o risk preference. In Neuroeconomics (pp. 127-144).

Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644-1655.

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