A decision maker can be described with utility that is only a function of income. If this function is linear, the decision maker is:
A)risk-averse.
B)risk-neutral.
C)risk-loving.
D)risk-gaining.

Question

Quizplus · Accepted Answer

If the utility function is linear, it means that for every additional unit of income, the same amount of utility will be gained. Therefore, the decision maker is indifferent to the level of risk involved in a particular choice, making them risk-neutral. If the utility function is linear, this means that the decision maker places the same value on each additional unit of income. This indicates that the decision maker is risk-neutral, meaning they are indifferent between two options with different payoffs and have no preference for risk.

A Decision Maker Can Be Described with Utility That Is