A decision maker has a utility function $U = \sqrt { I }$ . This decision maker is
A) risk-averse.
B) risk-neutral.
C) risk-loving.
D) risk-gaining.

Question

Quizplus · Accepted Answer

This utility function exhibits decreasing marginal utility of income, as the square root function increases at a decreasing rate. This means that the decision maker is risk-averse, as they value each additional dollar of income less and less, and thus prefer a certain outcome over a risky one with the same expected value.

A Decision Maker Has a Utility Function U=IU = \sqrt { I }U=I​

A Decision Maker Has a Utility Function $U = \sqrt { I }$