-Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie
A) Is more risk averse than Lily
B) Is less risk averse than Lily
C) Has a larger risk premium than Lily
D) Has a lower certainty equivalent than Lily

Question

-Refer to Figure g.Lily's benefit function (dashed)is more concave than Millie's (dotted)in Figure g.Millie
A) Is more risk averse than Lily 
B) Is less risk averse than Lily 
C) Has a larger risk premium than Lily 
D) Has a lower certainty equivalent than Lily

Quizplus · Accepted Answer

Millie's benefit function being less concave than Lily's indicates that Millie is less risk averse than Lily. A more concave utility function signifies greater risk aversion, as it reflects a stronger preference for certainty or a smaller payoff with certainty over a risky option with a potentially higher expected payoff.

-Refer to Figure G