Everyone has that friend, the one who is always drawn to risky sports: climbing, skydiving, surfing big waves. You might even be that person! But for many of us, there’s a hesitation. We like the idea of it (the excitement, the experience, the story) but when it comes to actually doing it, something holds us back. Do you know that these differences in preferences can be explained by the idea of how individuals make decisions under uncertainty?

Some people naturally lean towards safety. I certainly do. They prefer a certain outcome over a risky one, even if the risky option could lead to a better result. For example, skydiving comes with risks, but it could also mean something unforgettable, enjoying incredible views and an experience you wouldn’t get any other way.

We don’t even need to think about extreme examples like skydiving. We see this in everyday choices: buying insurance, choosing a fixed-rate mortgage, or simply avoiding situations where the outcome feels uncertain. That uncertainty is exactly what makes many of us risk-averse.

Others, like that friend who is always talking about the excitement of risky sports, lean the opposite way. They’re more comfortable with risk, sometimes even drawn to it! The uncertainty itself, the possibility of a big win or a new experience, is part of the appeal. That’s why activities like gambling, speculative investing, or starting something new tend to attract those who are more willing to take risks.

But let’s be honest, most of us don’t fit neatly into one category. Our willingness to take risks changes depending on the situation: what’s at stake, how we feel about it, or how exciting it seems. You might be open to something like skydiving, but still choose to travel with insurance. In 2009 Netzer discussed how both time preferences and attitudes toward risk can evolve. Age, income, past experiences, and even cultural context can all shape how we evaluate uncertainty. So, are we seeking security or adventure?

Like most people, it depends on the options, where we are in life, and sometimes just on the day. We may love the thrill of travel but value stability in our finances. Economics helps us understand those trade-offs. This links closely to another core idea in economics: intertemporal consumption, how people choose between consuming now vs. later? Do we save for the future (security)? Or spend today (adventure)? These choices happen at both the individual and macroeconomic levels. We recently this in a reel and case study.

References

Netzer, N (2009). Evolution of Time Preferences and Attitudes Toward Risk. American Economic Review, Papers & Proceedings, 99(2), 96–102.

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