$$\text { A decision maker has a utility function } U = \sqrt { I } \text {. This decision maker is: }$$
A)risk-averse.
B)risk-neutral.
C)risk-loving.
D)risk-gaining.

Question

Quizplus · Accepted Answer

The utility function is concave, which means that the decision maker exhibits decreasing marginal utility of income. This is a characteristic of risk-averse individuals who prefer a certain outcome to a risky one with the same expected value. The decision maker's utility function is U = sqrt(I), which implies that the marginal utility of income decreases as income increases. In other words, as the decision maker gets richer, the additional utility they receive from an extra dollar of income diminishes. This is a characteristic of risk aversion, as risk-averse decision makers are willing to pay to avoid the possibility of losing money even if the potential gains are high. Thus, the decision maker is risk-averse.

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$\text { A decision maker has a utility function } U = \sqrt { I } \text {. This decision maker is: }$