Diminishing marginal utility of wealth leads to risk aversion because at a given level of wealth a dollar gained
A) is worth more in additional utility than a dollar lost.
B) is worth less in additional utility than a dollar lost.
C) is worth as much in additional utility as a dollar lost.
D) does not add to total utility.

Question

Quizplus · Accepted Answer

Diminishing marginal utility of wealth implies that as wealth increases, the additional utility gained from an extra dollar decreases. Therefore, losing a dollar results in a greater loss of utility than the gain in utility from gaining a dollar, leading to risk aversion.

Diminishing Marginal Utility of Wealth Leads to Risk Aversion Because