Consider the marginal utility of income curves of Hank,Babe,Barry,and Willie.Hank's is constant;Babe's is slightly diminishing;Barry's is strongly diminishing;and Willie's is upward sloping.All else equal,which of these individuals will be most risk-averse?
A)Hank
B)Babe
C)Barry
D)Willie

Question

Quizplus · Accepted Answer

Barry's strongly diminishing marginal utility of income indicates that he values each additional dollar less as he earns more money, making him more risk-averse. Willie's upward sloping marginal utility of income suggests that he values each additional dollar more as he earns more money, making him less risk-averse. Hank's constant marginal utility of income and Babe's slightly diminishing marginal utility of income also do not indicate a strong preference for risk-aversion, making C the best choice.

Consider the Marginal Utility of Income Curves of Hank,Babe,Barry,and Willie