The utility function for a risk avoider typically shows a diminishing marginal return for money.

Question

The utility function for a risk avoider typically shows a diminishing marginal return for money.​

Quizplus · Accepted Answer

A risk avoider is willing to pay a premium - in terms of accepting lower expected returns - to avoid risk or uncertainty. As the amount of money they have increases, the marginal benefit they derive from each additional dollar decreases or diminishes. This is known as diminishing marginal utility, which is a fundamental concept in economics. Therefore, the utility function for a risk avoider typically shows a diminishing marginal return for money.

The Utility Function for a Risk Avoider Typically Shows a Diminishing