Jessica must choose option A or option B. Option A gives her $10,000 for sure. Option B gives her $5,000 if a fair coin toss shows heads and $15,000 if it shows tails. If Jessica is risk averse her utility of wealth curve becomes
A) flatter as her wealth increases and she will choose option A.
B) flatter as her wealth increases and she will choose option B.
C) steeper as her wealth increases and she will choose option A.
D) steeper as her wealth increases and she will choose option B.

Question

Quizplus · Accepted Answer

A risk-averse individual prefers certainty over a gamble with the same expected value. Option A provides a certain $10,000, while Option B has an expected value of $10,000 but involves risk. A risk-averse person will choose the certain outcome, Option A. Additionally, a risk-averse utility curve becomes flatter as wealth increases, indicating diminishing marginal utility of wealth.

Jessica Must Choose Option a or Option B