If an individual is risk-averse, then his or her total utility function must display:
A)constant marginal utility.
B)diminishing marginal utility.
C)increasing marginal utility.
D)either constant or diminishing, but not increasing, marginal utility.

Question

Quizplus · Accepted Answer

Risk-averse individuals prefer certainty over uncertainty and are willing to give up potential gains to avoid potential losses. Diminishing marginal utility occurs when the more of a good or service that is consumed, the less additional satisfaction or utility it provides. This is consistent with a risk-averse individual who values each additional unit of a good or service less than the previous unit, as they are willing to give up potential gains to avoid potential losses. Therefore, if an individual is risk-averse, his or her total utility function must display diminishing marginal utility.

If an Individual Is Risk-Averse, Then His or Her Total