For a risk averse person,
A)the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
B)the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
C)the utility function exhibits the property of increasing marginal utility of wealth.
D)the utility function exhibits the property of constant marginal utility of wealth.

Question

Quizplus · Accepted Answer

Risk-averse individuals experience more discomfort from losing a certain amount of money than the pleasure they gain from winning the same amount. This is because their utility function typically exhibits diminishing marginal utility of wealth, meaning that as wealth increases, the additional satisfaction (utility) gained from an extra dollar decreases.

For a Risk Averse Person