What does the behavioral view of risk aversion suggest?

The behavioral view of risk aversion suggests that an individual's risk preferences are not fixed but rather can change based on various factors, including their current situation, context, and past experiences. This variability means that an investor may exhibit different levels of risk aversion depending on their financial circumstances, emotional state, investment horizon, and even social influences.

For example, an investor who has recently experienced a significant financial loss might become more risk-averse in future investment decisions compared to a situation where they feel financially secure and confident. This perception and responsiveness to their circumstances highlight the concept of situational variability in risk tolerance, which is central to understanding behavioral finance. This perspective contrasts with classical views of risk aversion that assume a constant level of risk preference across all individuals and situations.