Question

a. Attitude toward risk. What are risk aversion, risk neutrality and Risk loving behavior? b. Difference between Expected value and Expected Utility. c. Determine when a risk adverse consumer will buy insurance and when it will not buy insurance. d. The benefits of diversifying a portfolio. e. How to calculate expected return and variance of a portfolio.

Answer 1

Can answer only 4 parts according to Chegg policy

1 Risk aversion means individual is averse to risk.He prefers certainty to risk. Risk loving individual loves to take risk to gain something. Risk neutral persons are individuals fferent between certain amount and same amount gained through risk

2 Expected value shows the expected amount of money that one can gain from a lottery.it is only monetary amount. On the other hand expected utility shows expected utility from outcomes of the lottery. It involves both monetary amount as well as preferences

3 he will buy insurance if expected utility>expected value and will not buy if expected utility<expected value

4 Diversification reduces risk of portfolio.