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Microeconomics

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Risk Preferences: Convexity

MICRO-SN4QGV

Based on the following utility function (not an indifference curve!), is this individual risk averse, risk loving, or risk neutral?

Recall: a risk averse individual is someone who dislikes uncertain situations, and wants to attempt to reduce uncertainty; a risk neutral individual is indifferent to uncertainty, while a risk loving individual prefers to take some risk and likes uncertain situations. Imagine that in some periods, this individual consumes 2 units of The Goods, and in some periods, this individual consumes 10 units of The Goods.

A

Risk averse

B

Risk loving

C

Risk neutral