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Figure: Risk Aversion
-(Figure: Risk Aversion) Look at the figure Risk Aversion. Bob and Nancy have the same income and the same total utility. Nancy is _____ risk-averse than Bob because her marginal utility curve is _____ than Bob's.
A) more; flatter
B) more; steeper
C) less; flatter
D) less; steeper

Question

Use the following to answer questions:
Figure: Risk Aversion 
-(Figure: Risk Aversion) Look at the figure Risk Aversion. Bob and Nancy have the same income and the same total utility. Nancy is _____ risk-averse than Bob because her marginal utility curve is _____ than Bob's.
A) more; flatter 
B) more; steeper 
C) less; flatter 
D) less; steeper

Quizplus · Accepted Answer

Nancy is more risk-averse than Bob because her marginal utility curve is flatter than Bob's. This means that Nancy gets less additional utility from each additional dollar of income than Bob does. As a result, Nancy is more likely to prefer a sure thing to a risky gamble, even if the expected value of the gamble is higher.

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