What types (increasing/decreasing) of absolute risk aversion A(w) and relative risk aversion R(w) will be observed for the Investor X, whose utility function is , (where w is the total wealth and w is strictly positive) ?
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What types (increasing/decreasing) of absolute risk aversion A(w) and relative risk aversion R(w) will be observed for the Investor X, whose utility function is u(w) = log (w), (where w is the total wealth and w is strictly positive)? (A) The investor X exhibits increasing A(w) and constant R(w) (B) The investor X exhibits decreasing A(w) and constant R(w) (C) The investor X exhibits increasing A(w) and decreasing R(w) (D) The investor X exhibits increasing A(w) and R(w)
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.
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Question from the UoH 2020 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.