The parameter R in an exponential utility function represents the
A)decision maker's risk tolerance.
B)utility function's error tolerance.
C)posterior probability.
D)likely profit/loss from the investment.

Question

Quizplus · Accepted Answer

The parameter R in an exponential utility function represents the decision maker's risk tolerance. It reflects the degree to which an individual is willing to take risks in order to achieve higher expected returns. A higher value of R indicates a higher level of risk aversion, while a lower value indicates a greater willingness to take risks.

The Parameter R in an Exponential Utility Function Represents the