The parameter R in the exponential utility function U(x) = 1 - e^-^x^/^R represents the decision maker's risk tolerance. Larger values of R indicate that the decision maker A)is less risk averse (closer to neutral). B)is more risk averse (has less risk tolerance). C)is not concerned with risk. D)will accept the gamble.

Question

Quizplus · Accepted Answer

In the exponential utility function, the parameter R represents the decision maker's risk tolerance. Larger values of R indicate that the decision maker is less risk averse, meaning they are closer to being risk-neutral and more willing to take risks.

The Parameter R in the Exponential Utility Function U(x) =