Matt's Utility Function 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  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

Matt's concave utility function indicates that he is risk averse, meaning that the loss in utility from losing $1,000 is greater than the gain in utility from gaining $1,000. Therefore, his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000, which is the case in option C.

Matt's Utility Function If Matt's Current Wealth Is $51,000,then