Matt's Utility Function $$\begin{array} { c c }
\text { Wealth } & \text { Utilty } \
\$ 50,000 & 7000 \
51,000 & 7250 \
52,000 & 7499 \
53,000 & 7746
\end{array}$$ If Matt's current wealth is $51,000, then
A)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is risk averse.
B)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is not risk averse.
C)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.
D)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is not risk averse.

Question

Matt's Utility Function $$\begin{array} { c c } 
\text { Wealth } & \text { Utilty } \
\$ 50,000 & 7000 \
51,000 & 7250 \
52,000 & 7499 \
53,000 & 7746
\end{array}$$ If Matt's current wealth is $51,000, then
A)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is risk averse.
B)his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Matt is not risk averse.
C)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.
D)his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is not risk averse.

Quizplus · Accepted Answer

We can calculate the marginal utility of wealth from the given table. 
At $51,000 wealth, Matt has a marginal utility of 7250-7000 = 250 from gaining $1,000. 
And, Matt has a marginal utility of 7250-7499 = -249 from losing $1,000. 
Since the marginal utility of gaining $1,000 is less than the marginal utility of losing $1,000, Matt is risk-averse (option C).

Matt's Utility Function Wealth Utilty $50,000700051,000725052,000749953,0007746\begin{array} { c c } \text { Wealth } & \text { Utilty } \\\$ 50,000 & 7000 \\51,000 & 7250 \\52,000 & 7499 \\53,000 & 7746\end{array} Wealth $50,00051,00052,00053,000​ Utilty 7000725074997746​

Matt's Utility Function $\begin{array} { c c } \text { Wealth } & \text { Utilty } \\\$ 50,000 & 7000 \\51,000 & 7250 \\52,000 & 7499 \\53,000 & 7746\end{array}$