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
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.
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