Risk preferences refer to an individual's or group's willingness to take on risk when making decisions, particularly in financial contexts. People can be categorized as risk-averse, risk-seeking, or risk-neutral. Risk-averse individuals prefer safer options with lower potential returns, while risk-seeking individuals are more inclined to pursue high-risk opportunities for the chance of greater rewards. Risk-neutral individuals are indifferent to risk and focus solely on potential outcomes. Understanding risk preferences is crucial in fields like finance, insurance, and behavioral economics. For instance, investors often assess their risk preferences to determine suitable investment strategies, balancing potential gains against the likelihood of losses. This assessment helps in making informed decisions that align with personal or organizational goals.