Example of Risk Aversion

In finance, risk aversion relates to the psychology of avoiding risk. Investors are considered to be 'risk averse' in relation to market situations, financial products, or other elements of a transaction. This may also include a demand for compensation for risk, like a higher return on subprime securities, or other form of coverage for the risk taken. Risk aversion is a primary consideration in investment, because it affects the marketability of many products.