Risk averters and risk lovers.

Question

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Answer 1

Question

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

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Answer 2

Question

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

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Answer 3

Question

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

Answer 6

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.

Economics Concept Introduction

Risk averter: A risk averter is a person who prefers a certain income to an uncertain income with equal expected value.

Risk lover: A risk lover is a person who prefers an uncertain income to a certain income with equal expected value.

Answer 7

Chapter 5, Problem 1RQ

To determine

Risk averters and risk lovers.

Answer 8

Expert Solution & Answer

Explanation of Solution

A person who has a diminishing marginal utility of income and prefers to gamble with a certain income, so as to receive an equal expected income is known as a risk averter. Generally, a risk averter prefers not to invest in funds which have a higher degree of variability. Some people have an increasing marginal utility of income and prefer to gamble for an expected uncertain amount of income. However, the reasons that affect the attitude of a person toward the risk cannot be predicted.

There are some economic reasons which may influence the risk preferences of individuals. A wealthy person may often tend to be a risk lover, as he can bear the loss if the fund ends up with a loss. However, a person who earns average level of income may be a risk averter, as he may not be able to cope up with the loss. Therefore, he would prefer to be in a safer side by choosing the funds with a lower variability.