Some individuals, when facing a lottery or other situation of uncertainty, prefer not to accept gambles that are better than fair (i.e., have a positive expected return), because of the negative utility they receive from uncertainty. What is the name for this behavior?
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Choice under uncertainty has come up 27 times in 7 exams since 2007.
This question is on Risk aversion, certainty equivalent and risk premium, part of Choice under uncertainty in Microeconomics.
How the shape of utility reveals attitude to risk and how much a person would pay to avoid it.
TestStop has 16 past-paper questions on this subtopic; the nearest in year are below.
Question from the UoH 2015 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.