If Joanna is risk averse,then
A)her utility function exhibits the property of decreasing utility.
B)her utility function exhibits the property of increasing marginal utility.
C)she dislikes bad things more than she likes comparable good things.
D)she is unlike most people,because most people are not risk averse.

Question

Quizplus · Accepted Answer

Risk aversion means that Joanna dislikes bad things (such as losing money) more than she likes comparable good things (such as gaining money). This implies that her utility function exhibits diminishing marginal utility for wealth, and that she would require a higher level of expected utility to undertake a risky investment compared to a risk-neutral or risk-loving individual. Option A is incorrect as decreasing utility is a characteristic of risk-neutral individuals rather than risk-averse individuals. Option B is incorrect as increasing marginal utility is a characteristic of risk-loving individuals rather than risk-averse individuals. Option D is incorrect as risk aversion is a common attitude towards risks among people.

If Joanna Is Risk Averse,then