A risk-averse individual has:
A) an increasing marginal utility of income.
B) an increasing marginal utility of risk.
C) a diminishing marginal utility of income.
D) a diminishing marginal utility of risk.
E) a constant marginal utility of income, but a diminishing marginal utility of risk.

Question

Quizplus · Accepted Answer

A risk-averse individual is someone who prefers a certain outcome over a risky outcome with the same expected value. This means that the individual values the certainty of income more than the possibility of receiving a greater amount of income but with a risk of receiving less. This preference for certainty implies a diminishing marginal utility of income, as the individual becomes less and less willing to take on risk to obtain additional income.

A Risk-Averse Individual Has