Use the following to answer questions:
-(Table: Income and Utility for Tyler) The table Income and Utility for Tyler shows the utility Tyler receives at various income levels, but she does not know what her income will be next year. There is a 40% chance her income will be $20,000, a 40% chance her income will be $30,000, and a 20% chance her income will be $40,000. We know that Tyler is risk-averse because:
A) Tyler would prefer $40,000 but there is a risk she will make only $20,000.
B) Tyler's expected income is less than what she may actually earn.
C) Tyler's expected income is more than what she may actually earn.
D) Tyler is subject to diminishing marginal utility from income.

Question

Use the following to answer questions: 
-(Table: Income and Utility for Tyler) The table Income and Utility for Tyler shows the utility Tyler receives at various income levels, but she does not know what her income will be next year. There is a 40% chance her income will be $20,000, a 40% chance her income will be $30,000, and a 20% chance her income will be $40,000. We know that Tyler is risk-averse because:
A) Tyler would prefer $40,000 but there is a risk she will make only $20,000. 
B) Tyler's expected income is less than what she may actually earn. 
C) Tyler's expected income is more than what she may actually earn. 
D) Tyler is subject to diminishing marginal utility from income.

Quizplus · Accepted Answer

Risk aversion is characterized by diminishing marginal utility of income, meaning each additional dollar provides less additional utility, making Tyler prefer a certain income over a risky one with the same expected value.

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