What kind of a risk attitude does a utility function with downward sloping curvature indicate?

What kind of a risk attitude does a utility function with downward sloping curvature indicate?
A . risk mitigation
B . risk averse
C . risk seeking
D . risk neutral

View Answer

Answer: B

Explanation:

A utility function is graphed with utility on the y-axis and the variable driving utility (generally wealth) along the x-axis.

A concave utility function, ie a function with a downward sloping curve, indicates risk aversion. A convex utility function indicates a risk seeking attitude and a straight line (ie no curvature) indicates a risk neutral attitude.