The utility function of wealth for a risk-seeker has
A)an increasing slope as wealth rises.
B)a decreasing slope as wealth rises.
C)a constant slope as wealth rises.
D)a slope that could be any of these since utility of wealth is unrelated to risk-seeking.

Question

Quizplus · Accepted Answer

A risk-seeker is willing to take greater risks in order to achieve higher potential returns. This means that as their wealth increases, their marginal utility of wealth will also increase at an increasing rate. Therefore, the slope of their utility function of wealth will also increase as wealth rises.

The Utility Function of Wealth for a Risk-Seeker Has