Risk Preference

Question 1

What is a risk averse example with prospects?

Answer 1

Someone is risk averse if they prefer a certain amount of money to a prospect with the same expected value

Question 2

What is a risk loving example with prospects?

Answer 2

If someone prefers a risky prospect to the expected value of a ‘for sure’ prospect

Question 3

People usually choose the prospect with the highest:

Answer 3

Expected utility

Question 4

If someone’s utility function is concave, they are:

Answer 4

Risk averse

Question 5

If someone’s utility function is convex, they are:

Answer 5

Risk loving

Question 6

If someone’s utility curve is a diagonal line, they are:

Answer 6

Risk neutral

Question 7

What does concave mean?

Answer 7

Curves downward (Like a cave)

Question 8

What does Convex mean?

Answer 8

Curves upward

Question 9

What is the reflection effect?

Answer 9

When someone has opposite preferences when a prospect is a gain vs a loss

Question 10

If people have higher income, their portfolio has a higher:

Answer 10

Predicted proportion in risky assets