The Economics of Risk Aversion

In general, people don’t like risk and are willing to pay a price to avoid it. Just ask the U.S. insurance industry, which collects more than $1 trillion in premiums every year. But what exactly is risk? And why don’t most people like it? To answer these questions, we need to look briefly at the concept of expected value and the meaning of uncertainty. Then we can turn to why people dislike risk.