A decision maker can be described with utility which is only a function of income and which exhibits diminishing marginal utility of income. This decision maker is:
A)risk-averse.
B)risk-neutral.
C)risk-loving.
D)risk-gaining.

Question

Quizplus · Accepted Answer

The diminishing marginal utility of income implies that as income increases, the additional satisfaction derived from each additional unit of income decreases. This suggests that the decision maker is risk-averse, as they would be willing to give up a certain amount of income in order to avoid a certain level of risk. Since the decision maker exhibits diminishing marginal utility of income, they are risk-averse, meaning they are willing to give up a certain amount of income in order to reduce their risk.

A Decision Maker Can Be Described with Utility Which Is