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

Question

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

Quizplus · Accepted Answer

A more concave benefit function indicates a higher level of risk aversion. Since Lily's benefit function is more concave than Millie's, Lily is more risk averse.

-Refer to Figure G