9781118041581

Risk Aversion 529

Utility

Utility

Utility

Risk averse

Risk neutral

Risk loving

Wealth

Wealth

Wealth

(a)

(b)

(c)

FIGURE 12.10

Three Utility Functions

A risk-averse individual

(part [a]) has a concave

utility function. A risk-

neutral individual (part

[b]) has a linear utility

function. A risk-loving

individual (part [c]) has

a convex utility

function.

c12DecisionMakingunderUncertainty.qxd 9/29/11 1:34 PM Page 529