Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's benefit function (dotted).Lily:
A) is more risk averse than Millie.
B) is less risk averse than Millie.
C) has a smaller risk premium than Millie.
D) has a larger certainty equivalent than Millie.

Question

Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's benefit function (dotted).Lily: 
A) is more risk averse than Millie. 
B) is less risk averse than Millie. 
C) has a smaller risk premium than Millie. 
D) has a larger certainty equivalent than Millie.

Quizplus · Accepted Answer

A more concave benefit function implies higher risk aversion. Therefore, Lily, with a more concave benefit function, is more risk averse than Millie.

Refer to Figure G