For a risk-neutral person,the expected utility associated with various levels of wealth
A) is above the person's utility function.
B) is below the person's utility function.
C) is equal to the person's utility function.
D) does not exist.

Question

Quizplus · Accepted Answer

For a risk-neutral person, the expected utility associated with various levels of wealth is the same as the expected value of wealth. This can be expressed as:

EU(w) = E[w]

Since the person is risk-neutral, the utility function is linear, meaning that the utility associated with various levels of wealth is directly proportional to the level of wealth. Thus, the expected utility is equal to the expected value of wealth. Therefore, the expected utility associated with various levels of wealth is equal to the person's utility function.

For a Risk-Neutral Person,the Expected Utility Associated with Various Levels