The shape of your utility function implies that you are a risk-averse individual, and, therefore, you would not accept the wager because the difference in utility between C and A is less than the difference between A and B. Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. O Risk-averse people overestimate the probability of losing money. The utility function of a risk-averse person exhibits the law of diminishing marginal utility. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.
The shape of your utility function implies that you are a risk-averse individual, and, therefore, you would not accept the wager because the difference in utility between C and A is less than the difference between A and B. Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. O Risk-averse people overestimate the probability of losing money. The utility function of a risk-averse person exhibits the law of diminishing marginal utility. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Suppose your classmate Yakov offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you have
to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the
graph to answer the questions that follow.
UTILITY (Units of utility)
100
90
8
8
70
288
50
40
30
20
10
0
WEALTH (Thousands of dollars)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62d95582-cbf2-49de-ac5a-da05cecb0899%2F6d00b495-e7ac-4751-a90f-e8613017cba5%2Fxk9tvm_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose your classmate Yakov offers you a wager: He will choose a playing card at random from a deck and pay you $1,000 if it is red, but you have
to pay him $1,000 if it is black. Assume your wealth is currently $3,000. The graph shown below plots your utility as a function of wealth. Use the
graph to answer the questions that follow.
UTILITY (Units of utility)
100
90
8
8
70
288
50
40
30
20
10
0
WEALTH (Thousands of dollars)
![The shape of your utility function implies that you are a risk-averse individual, and, therefore, you would not accept the wager because
the difference in utility between C and A is less than the difference between A and B.
Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals
who are risk averse? Check all that apply.
Risk-averse people overestimate the probability of losing money.
The utility function of a risk-averse person exhibits the law of diminishing marginal utility.
The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.
The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62d95582-cbf2-49de-ac5a-da05cecb0899%2F6d00b495-e7ac-4751-a90f-e8613017cba5%2Fhrhegz_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The shape of your utility function implies that you are a risk-averse individual, and, therefore, you would not accept the wager because
the difference in utility between C and A is less than the difference between A and B.
Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals
who are risk averse? Check all that apply.
Risk-averse people overestimate the probability of losing money.
The utility function of a risk-averse person exhibits the law of diminishing marginal utility.
The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.
The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.
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