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In: Finance

When people have diminishing marginal utility, they have apreference forA. risk aversion.B. risk...

When people have diminishing marginal utility, they have a preference for

A. risk aversion.

B. risk smoothing.

C. risk pooling.

D. risk premium.

Solutions

Expert Solution

The correct answer is "A"

A risk Aversion person has a diminishing marginal utility for its income. It means that if a person is given a choice to choose between an increase in the level of income with risk and a reduction in the level of income otherwise, he will choose the deduction as it is less risky.

So the risk aversion person is willing to pay to avoid risk.

jeff jeffy answered 2 years ago
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