Financial risk depends on the capacity that a person has to assume uncertain investments. Initially, the speculator hopes that the more risk he assumes, the greater will be the return, but bigger the losses might be.
Risk aversion is closely related to the fear that a person has of losing all his money. Banks have a special system to measure the risk of the people that consists of a simple test where they can assess the level of risk that a person is prepared to assume.
I did some of these tests in different banks and the ambiguous questions that they ask is a way that they use to classify me, but in my opinion they don´t represent the reality. The problem of risk is closely related to psychology. In “the Gift of fear” Gavin de Becker wrote some revealing ideas about risk and fear that explain my point of view. “True fear is a gift. It is a survival signal that sounds only in the presence of danger. Yet unwarranted fear has assumed a power over us that it holds over no other creature on Earth. It need not be this way.”
Banks and other investment institutions base their propositions on “rational behavior” that is no more than the degree of uncertainty associated with the return on an asset. The problem is that fear is not closely related to rational behavior. In fact, what Gaver explains is the opposite and has an inverse relation. However, fear is a sign of survival and a natural instinct, but not a rational behavior.
Something that I learnt in my short experience in dealing with banks is that they want to be rich with your money instead of getting rich with you. If you trust that they will take care of your money you are wrong because their first business is you, your mortgage, your credit, your account, and those they can sell to grab you by your balls. Take care with your bank because it will give you the small change that it is earning with you.