A person with diminishing marginal utility of wealth is risk averse.

Question

Quizplus · Accepted Answer

Diminishing marginal utility of wealth implies that as a person becomes wealthier, each additional unit of wealth provides less utility or satisfaction than the previous one. This characteristic leads to risk aversion because the potential loss of wealth would result in a larger decrease in utility compared to the utility gained from an equivalent amount of wealth gained. Therefore, such individuals are more likely to avoid risky situations that could result in losses.

A Person with Diminishing Marginal Utility of Wealth Is Risk