A risk-loving decision maker will choose the alternative with the highest variance among alternatives with identical expected utilities.

Question

Quizplus · Accepted Answer

A risk-loving decision maker is willing to take on more risk in exchange for the possibility of higher rewards. Therefore, they will choose the alternative with the highest variance (which represents more risk) among alternatives with the same expected utility (which represents the average payoff). This is true for a risk-loving decision maker. They are willing to take on more risk for the potential of a higher reward, so they will choose the option with the highest variance, even if the expected utility is the same as other alternatives.

A Risk-Loving Decision Maker Will Choose the Alternative with the Highest