An individual will be averse to risk if his or her marginal utility of income falls as income rises.

Question

Quizplus · Accepted Answer

This is because the more income someone has, the less impact an additional loss or gain will have on their overall level of wealth, leading to diminishing marginal utility of income. Therefore, they will be less willing to take on risk, as the potential loss would have a larger impact on their overall level of wealth.

An Individual Will Be Averse to Risk If His or Her