Risk aversion describes a person's tendency to:
A) avoid risk at all cost.
B) be conservative in assessing a certainty equivalent.
C) select the safest option.
D) attach lower marginal utility to higher monetary outcomes.
E) always pay for 100% insurance against risks.

Question

Quizplus · Accepted Answer

Risk aversion means that a person attaches lower marginal utility to higher monetary outcomes, meaning they prefer lower-risk options even if it means potentially sacrificing higher returns. This is a rational behavior as people want to reduce the possibility of experiencing losses. The other choices present extreme or incorrect interpretations of risk aversion.

Risk Aversion Describes a Person's Tendency To