David's Utility Function

If David's current wealth is $61,000,then
A)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is risk averse.
B)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is not risk averse.
C)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is risk averse.
D)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is not risk averse.

Question

David's Utility Function

If David's current wealth is $61,000,then
A)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is risk averse. 
B)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000.David is not risk averse. 
C)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is risk averse. 
D)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000.David is not risk averse.

Quizplus · Accepted Answer

If David's utility function is concave (which is typical for risk-averse individuals), his gain in utility from gaining $1,000 will be less than his loss in utility from losing $1,000. This means he is risk-averse. Therefore, option A is correct.

David's Utility Function If David's Current Wealth Is $61,000,then