If a utility function is concave,a decision maker will ________.
A) always choose a risky gamble
B) always choose a sure thing
C) always make a decision in uncertainty or ignorance
D) choose a prospect whose expected value is identical to a sure thing

Question

Quizplus · Accepted Answer

A concave utility function implies diminishing marginal utility. This means that as the amount of the uncertain event increases, the additional utility derived from it decreases. Therefore, a decision maker with a concave utility function tends to be risk-averse and would prefer a sure thing over a risky gamble.

If a Utility Function Is Concave,a Decision Maker Will ________