(Solved): The shape of your utility function implies that you are a _____(risk-averse/ risk friendly) individ ...

The shape of your utility function implies that you are a _____(risk-averse/ risk friendly) individual, and, therefore, you ___(would/would not) accept the wager because the difference in utility between B and A is ____(less then/greater than ) the difference between A and C.

5. Understanding risk aversion Suppose your classmate Teresa offers you a wager: She will choose a playing card at random from a deck and pay you $$\$1,000$$ if it is red, but you have to pay her $$\$1,000$$ 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. The shape of your utility function implies that you are a individual, and, therefore, you accept the wager because the difference in utility between $$B$$ and $$A$$ is the difference between $$A$$ and $$C$$. 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 are relatively wealthy and simply do not need the additional 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. Risk-averse people overestimate the probability of losing money.