If x is a monetary value (a payoff if positive, a cost if negative), U(x) the utility of this value, and R 0 is the risk tolerance, then the function U(x) = 1 - is called a(n):
A) Poisson utility
B) exponential utility
C) binomial utility
D) normal utility

Question

If x is a monetary value (a payoff if positive, a cost if negative), U(x) the utility of this value, and R > 0 is the risk tolerance, then the function U(x) = 1 -  is called a(n):
A) Poisson utility 
B) exponential utility 
C) binomial utility 
D) normal utility

Quizplus · Accepted Answer

The given function is the formula for exponential utility. The Poisson utility function is used for discrete events, the binomial utility function is used for two possible outcomes, and the normal utility function is not a common utility function used in finance.

If X Is a Monetary Value (A Payoff If Positive