Question

Explain how the shape of expected utility function describes the consumer's attitude to risk

Answer 1

In the different prior speculations of buyer's conduct we saw that in settling on decisions among ware packs when there is no hazard and vulnerability, the shopper amplifies his utility. We will investigate how an individual augments his normal utility when hazard or vulnerability is available.

Its premise rotates around people's inclinations, yet we should utilize alert as we apply utility theory. The utility hypothesis is used to analyze at least two choices. In this way, by its very nature, we allude to the utility hypothesis as an "ordinal" hypothesis, which ranks requests decisions, instead of "cardinal" utility, which can connect a number to even a solitary result where there are no decisions included.

Utility hypothesis settles upon the possibility that individuals act as though they settle on choices by doling out fanciful utility qualities to the first money related qualities. The chief sees various degrees of fiscal qualities, makes an interpretation of these qualities into various, theoretical terms ("utils"), forms the choice in utility terms (not in riches terms), and makes an interpretation of the outcome back to money-related terms. So while we watch contributions to and aftereffects of the choice in fiscal terms, the choice itself is made in utility terms. What's more, given that utility signifies levels of fulfillment, people act as though they expand the utility, not the degree of watched dollar sums.