Question

An individual is risk neutral if her utility curve for money is

a. Concave.

b. Increasing at an increasing rate.

c. Decreasing.

d. Convex.

e. Linear

Answer 1

Hi mates your answer is Option C

Answer 2

Answer:

Linear

Explanation:

Risk-neutral: If a person's utility of the expected value of a gamble is exactly equal to their expected utility from the gamble itself, they are said to be risk-neutral. In practice, most financial institutions behave in a risk-neutral manner while investing.

Risk-neutral behavior is captured by a linear Bernoulli function. For the above gamble, a risk-neutral person whose Bernoulli utility function took the form u(w) = 2w would have an expected utility over the gamble of:

(0.5 * 2 * 10) + (0.5 * 2 * 20) = 30,

while their utility of the expected value of the gamble is 2 * 15 = 30.