Risk Aversion and the Roots of Anxiety

Often we confront risks: opportunities where we have some probability of gaining or losing something and have to decide whether or not to accept the opportunity.

The simplest risks are financial. For example, I have the chance to buy a stock that might go up or down, and I have to choose whether to buy.

But the phenomenon is far more general. For example, I consider spending the afternoon swimming in the ocean, which comes with a high probability of a modest gain (a happy few hours at the shore) and a small likelihood of a great loss (a shark encounter).

Much of decision-making consists of evaluating risks and being sensible about when to be mindful of or discount potential losses.

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People with anxiety disorders distinctively confront risks. They tend to avoid potential bad outcomes and a willingness to surrender possible good results.

Someone with public speaking anxiety, for example, might refuse invitations to give talks because they reckon the chance of a bad outcome (nervousness, being criticized) outweighs the personal and professional good that a public speaking engagement might bring. Since a happy and productive life is often built on accepting precisely these sorts of invitations, anxiety can be a profoundly limiting condition.

Two aspects that drive such anxiety are loss-aversion and risk-aversion. Retake a financial example. Say that there is a stock for $1 a share, which has a 50 percent chance of going to $10 and a 50 percent chance of going to 0. This is an attractive offer, but there are a couple of reasons someone might turn it down. Losing even a little money may be worse than gaining a lot. This is loss aversion. If the person wants a sure thing (no risk) and can't stand the thought of uncertainty, it is called risk aversion.

Declining to buy the stock satisfies both loss aversion and risk aversion. The person has a 100 percent chance (no risk) of not losing money (no loss).

The distinction between risk and loss allows us to understand why people with anxiety tend to make choices. So, do people with anxiety avoid gambles because they are unusually risk-averse or loss-averse?

Caroline Charpentier and co-authors found that risk-aversion characterizes anxiety (specifically, unmedicated pathological anxiety). Most of us are a little risk-averse and a little loss-averse. Charpentier et al. found that people with anxiety are just as loss-averse as everyone else but are more risk-averse.

The researchers showed that people with anxiety are more reluctant to take gambles. They considered how people with anxiety reacted to "gain only" chances. Furthermore, their heightened reluctance to accept standard risks was fully explained by their heightened risk-aversion.

Consider someone anxious about public speaking again. It is not that they believe a bad outcome is worse than others may think. Most people are equally displeased when public speaking goes badly. Their anxiety lies in their risk-aversion. They are uncertain how their public speaking engagement will go and prefer the more certain outcome of not speaking. Charpentier et al. said people with anxiety have an "intolerance to uncertainty."

What are the clinical implications of this finding for the treatment of anxiety? A study by Carolyn Lorian and co-authors showed that treating individuals with cognitive behavioral therapy – a standard treatment for anxiety disorders – induces a marked tendency to be more risk-taking. So it may be that our standard methods of treating anxiety reduce risk aversion.

This research suggests change is possible for those with anxiety.

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