Tamar is risk averse.Which of the following is correct about Tamar?
A) Her marginal utility of wealth increases as her income increases.
B) She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
C) Her utility function is a straight line.
D) None of the above are correct.

Question

Quizplus · Accepted Answer

A risk-averse person derives less additional satisfaction from each additional unit of wealth, so their marginal utility of wealth decreases as income increases. They would not accept a fair bet (equal probability of winning and losing) because they prefer certainty. A risk-averse person's utility function is concave, not a straight line.

Tamar Is Risk Averse