An individual who is risk-averse:
A) never takes risks.
B) accepts risk but only when the expected return is very small.
C) requires larger compensation when the risk increases.
D) will accept a lower return as risk rises.

Question

Quizplus · Accepted Answer

A risk-averse individual requires larger compensation when the risk increases, as they are less willing to take on risk and need to be incentivized to do so. Option A is too extreme, as risk-averse individuals may still take on some risk. Option B is incorrect because a risk-averse individual is unlikely to accept risk if the expected return is very small. Option D is also incorrect because a risk-averse individual would require higher returns, not lower returns, as the level of risk increases.

An Individual Who Is Risk-Averse