A decision maker can be described with utility which is only a function of income.If this function is linear,the decision maker is
A) risk-averse.
B) risk-neutral.
C) risk-loving.
D) risk-gaining.

Question

Quizplus · Accepted Answer

If the utility function of a decision maker is linear with respect to income, it means that their level of satisfaction or utility depends only on their income level and not on the specific lottery or outcome they may face. This implies that the decision maker is risk-neutral, meaning they are indifferent between a certain outcome and a gamble that can be expressed as a linear combination of outcomes with different probabilities. They would be willing to take on risk if the expected value of the gamble is higher than the certain outcome, and vice versa.

A Decision Maker Can Be Described with Utility Which Is