Eddie is risk averse.Which of the following is correct about Eddie?
A)His marginal utility of wealth increases as his income increases.
B)He will not accept bets where his probability of winning and losing a dollar are the same.
C)Both A and B are correct.
D)Neither A nor B are correct.

Question

Quizplus · Accepted Answer

Eddie's risk aversion implies that he values a dollar more than the expected value of a risky bet. Therefore, he will not accept bets where the probability of winning and losing a dollar are the same. However, there is no information to suggest that his marginal utility of wealth increases as his income increases, so option A is not necessarily true.

Eddie Is Risk Averse