Question

Which of the following statements are not true about a risk-averse individual? (Multiple answers possible)

a. The individual prefers the expected utility they will get from their actual (uncertain) income to the util they would get from their expected income.
b. Their utility of income increases at an increasing rate.
C. The individual has a concave utility function.
d. The individual prefers 'insurance' to 'no insurance' and the individual is indifferent between 'full insurance' and 'partial insurance', given the same price.
e. The individual exhibits declining marginal utility of income.
f. The individual prefers a certain outcome to an uncertain outcome with the same expected income.

Answer 1

Inaccuracies about risk-averse individuals include the belief that their utility of income increases at an increasing rate and that they are indifferent between full and partial insurance given the same price.

Step-by-step explanation:

The statements that are not true about a risk-averse individual are: b. Their utility of income increases at an increasing rate, and d. The individual prefers 'insurance' to 'no insurance' and the individual is indifferent between 'full insurance' and 'partial insurance', given the same price. Risk-averse individuals typically exhibit characteristics as follows: They prefer the expected utility of their certain income over an uncertain one with the same expected value, which directly contradicts statement a. They have a concave utility function as mentioned in statement c, which indicates a decreasing marginal utility of income, as shown in statement e. And they usually prefer a certain outcome over an uncertain one, which resonates with statement f. The incorrect statements imply a preference for risk that does not align with risk-aversion.