Table 27-1

$\text { Kevin's Utility Function }$
$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { W ealth } \
\text { (Dollars) }
\end{array} & \text { Utility } \
\hline 50,000 & 3,000 \
\hline 51,000 & 3,140 \
\hline 52,000 & 3,266 \
\hline 53,000 & 3,373 \
\hline
\end{array}$

-Refer to Table 27-1. If Kevin's current wealth is $51,000, then
A)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.Kevin is risk averse.
B)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.Kevin is not risk averse.
C)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.Kevin is risk averse.
D)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.Kevin is not risk averse.

Question

Table 27-1
​
 $\text { Kevin's Utility Function }$
$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { W ealth } \
\text { (Dollars) }
\end{array} & \text { Utility } \
\hline 50,000 & 3,000 \
\hline 51,000 & 3,140 \
\hline 52,000 & 3,266 \
\hline 53,000 & 3,373 \
\hline
\end{array}$ ​
​
-Refer to Table 27-1. If Kevin's current wealth is $51,000, then
A)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.Kevin is risk averse.
B)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.Kevin is not risk averse.
C)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.Kevin is risk averse.
D)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.Kevin is not risk averse.

Quizplus · Accepted Answer

The utility from gaining $1,000 when Kevin's wealth is $51,000 is the difference between the utility at $52,000 and $51,000, which is 3,266 - 3,140 = 126. The utility loss from losing $1,000 when Kevin's wealth is $51,000 is the difference between the utility at $51,000 and $50,000, which is 3,140 - 3,000 = 140. Since the loss in utility (140) is greater than the gain in utility (126), and this behavior is indicative of risk aversion, option C is correct.

Table 27-1 ​ Kevin’s Utility Function \text { Kevin's Utility Function } Kevin’s Utility Function ​ ​ -Refer to Table 27-1

Table 27-1
$\text { Kevin's Utility Function }$

-Refer to Table 27-1