Imagine that you just received a $5,000 bonus from your job.
Amazing!
This was so unexpected that you don’t even know what to do with it.
Well…here are some options:
- Do you want to play it safe and put the money in a savings account, earning a steady but small amount of interest?
- Do you want to invest it in a balanced mutual fund, focusing on the average return and not worrying too much about market ups and downs?
- Or maybe you are feeling adventurous, so you want to go all in on something like cryptocurrency or even buy lottery tickets, hoping for a big payoff while knowing you might lose it all.
If you’re risk-averse, you will probably put your money in a savings account. A risk-neutral person might invest it in a balanced mutual fund. But if you’re the opposite of risk-averse, that is, risk-seeking, you would buy cryptocurrency or lottery tickets.
Your choice depends on how comfortable you are with risk and what you value most—security, a balanced approach, or chasing excitement.
It seems quite straightforward, doesn’t it?
Well, it can be a bit more complicated than it seems. Because the best risk preference will and should always change according to the circumstances you are in at a given moment. Understanding these preferences can help tailor financial decisions to any situation.
Let’s dive deeper to understand why the opposite of risk-averse would not be as bad a preference as it might seem sometimes.
What Does It Mean to Be Risk-Averse?
People hate to lose.
So it makes sense for some people to avoid the ‘risk’ of losing. They prefer certainty over uncertainty, even though the latter could offer a better outcome.
Roughly speaking, this is the definition of risk aversion.
More accurately, risk aversion can be defined as:
Someone is said to be risk-averse if they are disinclined to pursue actions that have a non-negligible chance of resulting in a loss or whose benefits are not guaranteed
In other words, risk-averse people prefer stability over opportunity.
Of course, the decision to be risk-averse depends on many factors. But oftentimes it makes sense to be risk-averse because the pain of losing often outweighs the joy of equivalent gains.
Losing something makes you twice as miserable as gaining the same thing makes you happy
Nudge by Richard Thaler
Richard H. Thaler and Daniel Kahneman are the leading researchers working in this area. As Richard Thaler describes it, “Losing something makes you twice as miserable as gaining the same thing makes you happy“
Kahneman, Knetsch, and Thaler ran an experiment to prove the practicality of this idea.
In this experiment, they handed over coffee mugs to a class of students. Only some students in the class got the mugs, and some didn’t. And then the mug owners were invited to sell their mugs, and the ones who did not have mugs were invited to buy them. The mug owners demanded roughly twice the price that others demanded to buy a mug.
We can see this behaviour often in real life.
Examples of risk aversion in real life are:
- Opting for stable employment instead of pursuing a risky entrepreneurial venture.
- Preferring fixed-rate mortgages over variable-rate ones, even with potentially lower rates.
The opposite of risk-averse: Risk seeking
Now that we understand what it means to be risk-averse, let’s look at the opposite of risk aversion—that is, risk-seeking.
The term is almost self-explanatory, but it gets more complicated once we dig deeper into the concept.
One is said to be a risk seeker if one is willing to embrace the uncertainty of a situation to seek higher rewards. Unlike the ones who are risk-averse, risk seekers are less ‘threatened’ by the face of potential losses.
Risk seekers tend to focus more on the gains. They prioritize potential rewards over potential losses. And, consequently, they are driven by the attraction to uncertainty. High-risk scenarios, like gambling or speculative investments, appeal to risk-seekers.
For instance, entrepreneurs are a good example of risk seekers. About 50% of startups fail within the first five years. Yet, entrepreneurs are willing to take that risk for the long-term reward.
Another example would be high-stakes investments such as betting on volatile cryptocurrencies or penny stocks.
These types of risks are often motivated by psychological factors rather than rational calculations. And they significantly deviate from rational decision-making.
The psychology behind risk seeking
Why people make such risk-seeking decisions is an ongoing debate in behavioural economics. Here are some possible key drivers.
Prospect Theory (Kahneman & Tversky):
As explained above, people are more prone to gain than to lose the same item. Kahneman and Tversky argue that people tend to take more ‘riskier’ actions to avoid losses. A good example of this would be to double down on a declining cryptocurrency. When someone is in the ‘losing domain’, they often switch to ‘risk-seeking behavior’, hoping that it’ll quickly reverse the loss into a gain.
Overconfidence Bias:
This behavior can often be seen in behavioral finance, where overconfidence is shown to drive investors to underestimate risks and overestimate their ability to predict outcomes.
Many investors feel confident they can “beat the market” by perfectly timing their trades or spotting hidden gems, like penny stocks or new cryptocurrencies. This optimism can often lead them to take risks on assets that are unpredictable and highly volatile, sometimes without fully considering the potential downsides.
Sunk Cost Fallacy:
The sunk cost fallacy is when we stick with something because we’ve already spent a lot on it, even if quitting would be better. The sunk cost fallacy helps produce mental inertia, meaning a strong desire to stick with your current holdings.
For instance, in a financial venture, once money is invested, the psychological difficulty of accepting a loss can push investors to “ride out” risky positions, even when the odds are against their favour.
Fear of Missing Out (FOMO):
Success stories, especially imposed by mainstream media, make people make poorly calculated decisions. One of the best examples from the last decade is the Bitcoin stories. The media was covering news about how people made millions starting from nothing. This ‘hyped’ news made people make risky decisions, overlooking the potential uncertainties.
Research shows that the Bitcoin price usually goes up when heavy media attention is given.
However, such gains are very rare, and many latecomers face losses when the market cools down.
Illusion of Control:
The illusion of control in economics refers to people believing they have more control over outcomes than they actually do.
In other words, people are often fooled by randomness.
When it comes to investing, this can lead people to think they can predict or influence how the market will behave, even though it’s highly unpredictable.
For instance, an investor would think that they can accurately predict the stock market dynamics by carefully analyzing the statistics. But markets are driven by numerous unpredictable factors—many of which are completely randomized. One idea that they can ‘beat the market‘, therefore, is often rooted in overconfidence, not skill.
Risk-Neutral: The Third Risk Preference
Now that we’ve covered the opposite of risk aversiveness, let’s take a look at the ‘middle ground’, that is, risk neutral.
People who are ‘risk-neutral’ make decisions with no emotional bias. They only focus on the expected outcome. They neither shy away from risk nor chase it; their choices depend purely on the probability.
They stay away from emotional factors like fear or excitement.
One example of risk-neutral behavior is making insurance decisions based merely on statistics. If you have personally experienced an earthquake recently, you are most likely to buy insurance even though the occurrence of an earthquake is statistically extremely rare(Nudge by Thaler).
A risk-neutral individual would combat the fear of finding themselves with another earthquake because they know it’s not statistically extremely unlikely—so they would not buy insurance or would not upgrade to a premium package.
How to Identify Your Risk Preference
It is clear that knowing when to be risk-averse, risk-seeking, or risk-neutral takes some serious critical thinking. This is not to say that you should always stick to one risk preference. We live in a dynamic world with unpredictable outcomes. The best decision to take, given the circumstances, can change in a second.
However, there should be a systematic way to approach this dilemma.
Here are 3 steps to identify the most suitable risk preference for any situation.
Step 1: Self-Reflection
Think about the last time you made a critical decision. Did you consider:
- Your safety (and/or the safety of other people who might have been involved in the decision-making)
- Was your decision logical? Does it make sense in terms of statistics and other reliable sources? Or did you take a bold risk?
- Did you consider that the outcome-to-input ratio was worth it?
Carefully answering these questions and reflecting on them will help you understand your risk assessment behavior. If there are any loopholes in your logical decision-making, it’s best to keep them in mind when making your next big financial decision.
But this is just the start.
Now, let’s get a bit more technical.
Step 2: Use risk assessment tools
Even though you have a ‘qualitative idea’ about your risk assessment, it would help you immensely if you use ‘quantitative’ risk assessment tools.
Even a simple Excel sheet can go a long way.
However, there are numerous open-source risk assessment tools available for the public.
- Vanguard’s risk assessment tool for personal investing
- Morningstar’s Risk Profiling and Risk Scoring Tools
- Personal finance assessment quizzes
By using these tools, you get a clearer picture of how much risk you can handle emotionally and financially. This helps you build an investment plan that matches your personality and goals, reducing stress while keeping you on track.
Step 3: Seek Expert Advice
It’s always best to seek one-to-one financial advice before making a big financial decision. Even if financial consulting costs money, it’d be worth it in the long run.
How Understanding Risk-Seeking Can Actually Improve Your Life
Most people hear “risk-seeking” and immediately think of recklessness—but the research says otherwise.
When you look a little closer, understanding how and why you seek (or avoid) risk becomes a practical tool. It helps you make better decisions, shape your career, and understand your own mind with more clarity. And once you see it this way, you start to notice the small but meaningful ways this knowledge shows up in daily life.
You can make more deliberate, less emotional decisions
Most risky choices are emotional in the moment—driven by excitement, fear, or a sense of urgency.
But understanding how risk seeking works gives you a way to pause and separate the emotion from the intention. You start thinking about what the outcome might look like if you take the risk, and that simple shift keeps the emotional noise in check.
The question changes, too.
Instead of asking, “Am I making a mistake here?” it becomes, “Is this the right chance for me to take?”
You learn to calibrate risk instead of avoiding it
Avoiding risk at all costs closes off a lot of opportunities—but taking blind risks can do the same.
Understanding where your natural risk-seeking tendencies lie helps you take calibrated risks instead: small experiments, controlled trials, reversible choices that stretch your comfort zone without putting you in real danger. In that sense, risk seeking becomes one of the foundations of consistent personal growth.
You start taking better career and opportunity bets
As the saying goes, “The Higher the risk, the higher the reward”—although that’s not always true.
Still, there’s a better chance that taking calculated risks will lead to some kind of payoff. In fact, career progress is almost always tied to well-chosen risks: applying for a role you think you’re not ready for, trying a side project, pitching an idea, changing fields, or approaching someone for help.
Being able to recognize when your risk aversion is irrational—or when your risk-seeking is impulsive—helps you make bolder, more strategic moves.
You improve your financial decisions
A better understanding of your risk tolerance makes you less vulnerable to impulsive trading, fear-driven selling, or FOMO-driven buying (fear of missing out). It also helps you align your investments with your own personality, not someone else’s model. This approach reduces regret and increases consistency, which stacks up over time.
You become more resilient when uncertainty hits
People who understand their risk preferences handle chaos and surprises much better.
Instead of panicking, you can recognize, “This is just uncertainty, not disaster,” and respond with logic rather than emotion.
Being aware of your own risk-seeking style helps you build a mental framework to stay steady during unexpected chaos in life.
You learn to separate risk-seeking from impulsivity
Many people confuse the two—but one is about variance and the other about lack of control.
In other words, risk-seeking is rational, while impulsivity is irrational. Understanding this distinction helps you avoid self-sabotage: you can preserve the upside of thoughtful risks while reducing the downside of emotional bias.
You can design an environment that nudges better choices
If you know your triggers for unnecessary risks—like stress, boredom, or social pressure—you can set rules and guardrails in advance.
On the flip side, if you tend to be overly cautious, you can create commitments that encourage productive risk-taking, such as deadlines, accountability partners, or small public commitments.
You unlock more creativity and exploration
Many creative leaps—like starting a new hobby, sharing your work publicly, or experimenting with writing or photography—are small, psychological risks. Understanding your risk-seeking tendencies helps you approach these intentionally rather than out of fear, which leads to more novelty, learning, and a richer life experience.
Bottom line
Understanding risk-seeking is not about becoming reckless; it’s about becoming strategic. It gives you a framework to describe your instincts, tools to shape them, and a way to make uncertainty work in your favor instead of against you.
Our risk preferences shape how we deal with uncertainty. The term loss aversion describes our tendency to fear losses more than we value equivalent gains. The opposite of risk aversion—risk-seeking and risk-neutral tendencies—reveals different ways people handle risk. These preferences give insight into decision-making frameworks, especially for high-stakes choices like investments or career moves. No matter what kind of risk taker you are, understanding your risk profile helps you make the right decisions.
It’s important to remember that a good financial decision isn’t about controlling the market, but about understanding it. The key to outsmarting the system is to diversify your portfolio, stay patient, and focus on long-term goals. It doesn’t matter how much control we think we have over the market—the market doesn’t play favorites.
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Frequently asked questions
What does “risk-seeking” actually mean?
Risk-seeking means choosing an option with a bigger risk—even if the safer choice is just as good or even better— simply because you prefer the chance of a bigger outcome.
Why are some people naturally more risk-seeking than others?
The main reasons why some people are more risk-seeking than others depend on biological factors like brain function, as well as culture and personal experiences.
Is being risk-seeking good or bad?
It depends on the situation. For example, taking a risk might give you a big reward, but it also comes with a lower chance of survival on average. So it comes down to this: how well you can take risks while keeping the downside in check.
How does risk-seeking behavior affect decision-making?
Risk-seeking comes with a side of emotional bias, which usually isn’t ideal. That’s because risk is handled best with logic, not feelings. The smarter way to take a risk is to base your decision on logic and probability, keeping emotions out of it.
Are risk-seekers more successful in the long run?
Studies show mixed results: a bit of risk-taking can help people explore new ideas and start businesses, but being too risk-tolerant—taking too many risks—often leads to lower profits and more failures.
In most cases, moderate risk works best.
What psychological factors make someone choose risky options?
Traits like seeking excitement, being highly motivated by rewards, and certain brain chemistry patterns are all linked to people being more risk-seeking.
Can someone become more (or less) risk-seeking over time?
Yes, people can change their openness to risk-seeking over time, although research shows it’s usually stable, just not fixed. Factors that can affect risk-seeking behavior include age, major life events, and cultural shifts around them.
What is the difference between risk-seeking and impulsive behavior?
Impulsivity is about acting without thinking, while risk preference is about being okay with uncertain outcomes.
For example, imagine someone in a casino who slams money on the table without even looking at their hand because they just lost big. That’s pure impulsive behavior.
Now, imagine someone else carefully chooses a risky game like poker or roulette because they’re comfortable with the possibility of big wins or losses. They’re not acting on impulse—they simply prefer high-variance outcomes.
How do I balance risk-taking with caution in my decisions?
Separating emotional impulses from careful thinking is the best way to handle high-risk situations because it helps you make more deliberate decisions. By noticing when emotions are driving your choices, understanding your actual risk tolerance, imagining possible outcomes, and testing ideas on a small scale, you avoid being misled by snap impulses.
Further Readings
- Thaler, Richard H., and Cass R. Sunstein. Nudge: The final edition. Yale University Press, 2021.
- Daniel Kahneman. Thinking, fast and slow. 2017.
- Taleb, Nassim Nicholas. Fooled by randomness: The hidden role of chance in life and in the markets. Editeurs divers USA, 2016.