The utility curve given below represents the preferences of a _________________ decision maker.
A)Risk averse
B)Risk neutral
C)Risk seeking
D)None of the above

Question

The utility curve given below represents the preferences of a _________________ decision maker. 
A)Risk averse 
B)Risk neutral 
C)Risk seeking 
D)None of the above

Quizplus · Accepted Answer

The concave shape of the utility curve indicates that the decision maker is risk averse, meaning they prefer a certain outcome over a risky outcome with the same expected value. This is because the marginal utility decreases as wealth increases, leading to diminishing returns to additional gains. Therefore, the decision maker would likely choose the option with the lower but certain payoff rather than a riskier option with a potentially higher payoff but also the possibility of a lower payoff.

The Utility Curve Given Below Represents the Preferences of a _________________