Tom has the following curve that represents his utility function. What is his attitude to risk?

Question

Quizplus · Accepted Answer

Tom is risk averse. If there is a lottery, Tom prefers the expected value of the lottery to the lottery itself. His utility function reflects his satisfaction for his wealth level and represents his welfare and preferences. Concave utility function shows that each increase in wealth conveys progressively smaller increase to utility.
Key Takeaway: Tom has his utility function concave to the origin because he is risk averse. For a risk neutral investor, his utility function is convex to the origin. For a risk lover, his utility function is a straight line.

Tom Has the Following Curve That Represents His Utility Function