Suppose that Mr. Kent is planning to fly to Kansas to visit his silver-haired mother for 16days. Mr. Kent lives in New York City and will depart from LaGuardia airport. Mr.Kent's utility function for the trip is U = 2T ^1/2, where T is the length of the visit in days. Due to chronic congestion and weather delays there is a 10 percent probability that the flight will be cancelled and Mr. Kent is forced to cancel his trip. Mr. Kent can best be describes as: A) A risk hater. B) A risk taker. C) A person who will accept a fair gamble. D) A risk averse individual. E) As someone who does not like traveling to Kansas.

Question

Quizplus · Accepted Answer

Mr. Kent's utility function and the fact that he is planning a trip despite a 10% chance of flight cancellation indicate he is risk averse. Risk averse individuals prefer certainty and are willing to engage in activities with known risks, but they generally prefer to minimize or mitigate those risks rather than seeking out risky situations for potential high rewards. The utility function does not show a preference for risk, and the willingness to plan a trip despite potential disruptions suggests a cautious approach to risk, characteristic of risk aversion.

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