Risk aversion refers to an individual's or investor's preference for avoiding risk, particularly in financial decision-making. It is the tendency to choose the safest possible option when faced with uncertainty and potential losses. In other words, it means being cautious about taking risks because of fear of losing money or facing adverse consequences. Risk aversion can be seen as a rational response to uncertain situations where the potential for loss outweighs any potential gain. It is an important concept in economics and finance, influencing investment decisions, portfolio management, and financial planning.