-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because
A) his utility function is convex.
B) he has negative marginal utility of wealth.
C) he is willing to pay a premium to avoid a risky situation.
D) All of the above.

Question

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because
A) his utility function is convex. 
B) he has negative marginal utility of wealth. 
C) he is willing to pay a premium to avoid a risky situation. 
D) All of the above.

Quizplus · Accepted Answer

Bob is risk averse because he is willing to pay a premium to avoid a risky situation. This is a characteristic of risk-averse individuals who prefer certainty over uncertainty, even if it means paying more to secure their wealth. The convexity of a utility function or negative marginal utility of wealth are not directly mentioned or implied in the scenario provided.

-The Above Figure Shows Bob's Utility Function