One class of "ready-made" utility functions is called exponential utility.Exponential utility has an adjustable parameter called risk tolerance.The risk tolerance parameter measures:
A) how much money the decision maker has to spend
B) the decision maker's attitude toward risk
C) how much risk there is in a given decision
D) the probability of an unfavorable outcome
E) None of these options

Question

Quizplus · Accepted Answer

The risk tolerance parameter in exponential utility measures the decision maker's attitude toward risk. It reflects how much risk the decision maker is willing to take on in exchange for potential gain. It is not related to how much money the decision maker has to spend, the amount of risk in a given decision, or the probability of an unfavorable outcome.

One Class of "Ready-Made" Utility Functions Is Called Exponential Utility