Being Risk-Averse in Investment Decisions

In a study conducted by psychologists at Stanford, participants were given the opportunity to invest in a startup. The study showed that people were more risk-averse if they were informed that the risk of loss was due to the founders potentially being frauds, rather than market demand overestimation. This suggests that individuals tend to underinvest in companies where the risk of being deceived is involved, even when financially the risks are equivalent. The insight here is to not let the fear of being tricked overshadow rational cost-benefit analysis.