An individual is risk-loving if his utility function is given by which of the following functional forms:
A) $U(x)=x^{2}$
B) $U(x)=x$
C) $U(x)=2 x$
D) $U(x)=100 x$

Question

Quizplus · Accepted Answer

A risk-loving individual prefers options with uncertainty over those with certainty, even if the expected returns are the same. The utility function $U(x) = x^2$ represents a risk-loving attitude because the utility increases at an increasing rate as wealth increases, indicating a preference for riskier options. Linear utility functions, as in options B, C, and D, represent risk neutrality, where the individual is indifferent between certain and uncertain options with the same expected return.

An Individual Is Risk-Loving If His Utility Function Is Given U(x)=x2U(x)=x^{2}U(x)=x2

An Individual Is Risk-Loving If His Utility Function Is Given $U(x)=x^{2}$