Risk is multi-dimensional. Risk is volatility. It is tail risk. It is the permanent loss of capital. Risk is a failure to meet financial goals.
In reality, these definitions are all closely related. Although standard deviation and conditional value-at-risk (CVaR) are excellent measures of risk for the statistically informed, they are not intuitive for most private investors. This opens the door for misalignment between portfolio selection and the investor’s true risk aversion. There are more-intuitive ways to express risk preference that can be translated into the language of portfolio theory.
Loss aversion is the behavioural tendency to prefer avoiding losses over acquiring gains. This behaviour probably is related to the marginal utility of wealth. A diversified multi-asset-class portfolio should offer an approximately symmetrical return distribution. Under this condition, a rational investor would consider risk to be the variance around the expected mean return.
However, loss aversion suggests the investor weighs the negative returns more heavily than what is implied by the variance around the expected mean return.
source:sound goals based investing