Consider a risk-averse individual whose initial situation is a risk-free basket of outcomes.How does this person react when he is offered a wager at favorable odds?
A) He always declines the wager.
B) He always accepts the wager.
C) He accepts the wager only if it is sufficiently small.
D) He accepts the wager only if it is sufficiently large.

Question

Quizplus · Accepted Answer

A risk-averse individual prefers to avoid risk and uncertainty, hence they will only accept the wager if it is sufficiently small. Accepting a small wager may not significantly alter their initial situation, but it offers a chance for a gain.

Consider a Risk-Averse Individual Whose Initial Situation Is a Risk-Free