Discussion
How is risk aversion represented in a utility framework?
Answer: A
A concave utility means that each additional unit of money or reward is worth less than the last, so a certain amount is preferred to a gamble of the same expected value. That is how risk attitude enters without abandoning expected utility maximisation. Distorting probabilities, adding penalties and refusing uncertainty are ad hoc alternatives that lack the axiomatic justification. Absorbing an apparent departure from the theory into the shape of the utility function keeps the framework intact.
No comment is present. Be the first to comment.
Loading…
Post your comment
Please log in or register to post a comment.
Examination Categories
- SSC Exams
- Banking Exams
- Teaching Exams
- Civil Services Exams
- Railways Exams
- Engineering Recruitment Exams
- Defence Exams
- State Government Exams
- Police Exams
- Insurance Exams
- Nursing Exams
- Other Government Exams
- NRA CET
- PG Entrance Exams
- Campus Placement
- MBA Entrance Exams
- CUET and UG Entrance
- Judiciary Exams
- Regulatory Body Exams
- Software Development