Mathematically, the utility function for risk adverse individuals is said to be ____ and/or ____.
A) decreasing , linear
B) decreasing , convex
C) increasing , linear
D) increasing , concave
E) increasing , decreasing

Question

Quizplus · Accepted Answer

Risk adverse individuals have a decreasing marginal utility function, meaning that the more wealth they have, the less utility they derive from each additional unit of wealth. Additionally, this function is concave, indicating that as wealth increases, the marginal utility of each additional unit of wealth decreases at an increasing rate. Therefore, the best choice for the utility function for risk adverse individuals is D, increasing and concave.

Mathematically, the Utility Function for Risk Adverse Individuals Is Said