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Figure: Differences in Risk Aversion
-(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion. An important reason Ernest and Salvatore may differ in their aversion to risk is:
A) the way their marginal utility is affected by income.
B) their understanding of risk.
C) their initial wealth holding or initial income level.
D) the way their marginal utility is affected by income and their initial wealth holding or initial income level.

Question

Use the following to answer questions:
Figure: Differences in Risk Aversion 
-(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion. An important reason Ernest and Salvatore may differ in their aversion to risk is:
A) the way their marginal utility is affected by income. 
B) their understanding of risk. 
C) their initial wealth holding or initial income level. 
D) the way their marginal utility is affected by income and their initial wealth holding or initial income level.

Quizplus · Accepted Answer

Ernest and Salvatore may differ in their aversion to risk due to both the way their marginal utility is affected by income and their initial wealth holding or initial income level. These factors influence how they perceive and react to risk.

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