Question

A risk-averse person has_______.

a. a utility function whose slope gets flatter as wealth rises. This means they have increasing marginal utility of wealth.
b. a utility function whose slope gets flatter as wealth rises. This means they have diminishing marginal utility of wealth.
c. a utility function whose slope gets steeper as wealth rises. This means they have increasing marginal utility of wealth.
d. a utility function whose slope gets steeper as wealth rises. This means they have diminishing utility of wealth.

Answer 1

The correct answer is B

Step-by-step explanation:

The risk averse is the situation which is referred to as the option of the lower risk. The investor faced with 2 investments which have the similar expected return and the investor prefer to have the option or investment which have the low risk.

So, it has a function of utility where the slope will be flatter as the wealth increases, which means that they have the decreasing marginal utility of the wealth.