The preferences a risk neutral individual can be captured in E(U) theory by:
A)a concave utility function.
B)a linear utility function.
C)a convex utility function.
D)an exponential utility function.
E)a circular utility function.

Question

Quizplus · Accepted Answer

A risk-neutral individual is indifferent to risk and values outcomes solely based on their expected values, which is represented by a linear utility function. This means their utility increases directly in proportion to the increase in wealth, without showing any preference for or aversion to risk.

The Preferences a Risk Neutral Individual Can Be Captured in E(U)