Question 705 utility, risk aversion, utility function
Mr Blue, Miss Red and Mrs Green are people with different utility functions.
Which of the following statements is NOT correct?
(a) Mr Blue is as happy with zero wealth as he is with $1,000. Similarly for Miss Red and Mrs Green.
(b) All of the people would appear irrational to an economist. Though Mr Blue appears to be rational when he has more than $192 in wealth.
(c) Mr Blue is risk averse. Miss Red is risk neutral. Mrs Green is risk loving.
(d) Miss Red is totally indifferent to how much wealth she has. She doesn't care about gaining or losing money.
(e) Mr Blue prefers more to less up to a wealth of around $192. At about $192 he is the happiest he can be. This is his bliss point. With more than $192 he becomes less happy.
Copyright © 2014 Keith Woodward