In which scenario would risk avoidance be applied?

Risk avoidance refers to taking proactive steps to eliminate any potential risks associated with certain activities or decisions. In this scenario, choosing not to engage in skydiving or extreme sports is a clear example of risk avoidance. By avoiding these activities, one effectively eliminates the possibility of injury or loss that could arise from participating in high-risk endeavors.

This distinction highlights the fundamental principle of risk avoidance: it aims to prevent the risk altogether rather than managing or mitigating it after it has been identified. When an individual decides against participating in activities known to carry a high degree of risk, they are consciously choosing to avoid the potential negative outcomes that may accompany those activities.

In contrast, the other scenarios involve different approaches to risk. Investing in high-stakes stocks represents risk acceptance, as it embraces the potential for high rewards in exchange for the chance of significant losses. Using insurance to cover potential losses is a method of risk management rather than avoidance—it acknowledges the risk but provides a financial safety net. Lastly, choosing to accept minor risks for rewards reflects a calculated risk-taking approach rather than a complete avoidance of risk.