Risk utility rises at a decreasing rate for a _____ person.Group of answer choicesrisk-neutralrisk-averserisk-seekingrisk-indifferent
Question
Risk utility rises at a decreasing rate for a _____ person.Group of answer choicesrisk-neutralrisk-averserisk-seekingrisk-indifferent
Solution
The correct answer is "risk-averse".
Here's why:
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Risk utility refers to the satisfaction or benefit that a person derives from taking or avoiding risk.
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A risk-neutral person is indifferent to risk. They don't get more or less satisfaction from taking on more or less risk.
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A risk-seeking person gets more satisfaction the more risk they take on. So their risk utility would rise at an increasing rate.
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A risk-indifferent person, like a risk-neutral person, doesn't get more or less satisfaction from taking on more or less risk.
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A risk-averse person, on the other hand, gets less satisfaction the more risk they take on. So their risk utility would rise, but at a decreasing rate. They prefer to avoid risk, so the more risk they take on, the less additional satisfaction they get.
Similar Questions
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