Someone who is risk averse
A)suffers a reduction in utility if their wealth declines by R100 that is smaller than the gain in utility they would obtain if their wealth increased by R100.
B)suffers a reduction in utility if their wealth declines by R100 that is larger than the gain in utility they would obtain if their wealth increased by R100.
C)will always buy insurance against all risks they face, regardless of the price of insurance.
D)is irrational.

Question

Quizplus · Accepted Answer

Someone who is risk averse would experience a larger decrease in utility as a result of losing R100 than the amount of utility they would gain from winning R100. Therefore, they would be more willing to pay to avoid risks and losses than to gamble for possible gains. Thus, option B is the correct choice.

Someone Who Is Risk Averse