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What would a riskseeking person's utility curve look like? What would a riskaverse person's utility curve look like?
 2 years ago
 2 years ago
What would a riskseeking person's utility curve look like? What would a riskaverse person's utility curve look like?
 2 years ago
 2 years ago

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AntiMatterBest ResponseYou've already chosen the best response.0
I guess, how do they compare to someone who is risk neutral
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
Cool stuff, we have two functions for utility here: (1.) riskseeking or riskloving, and (2.) riskaverse. They are opposing concepts, so their functions will essentially be near inverses of each other.
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
What happens when you're riskaverse?
 2 years ago

AntiMatterBest ResponseYou've already chosen the best response.0
seems that you are willing to forgo opportunities to gain that have uncertain probabilities
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
heh, right, so riskseeking is *willing
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
If you had a gamble: say 50/50 you could win $10..so with p=.5 you could win $10, and with p=.5 you could win $0. So the expected pay out is (.5)*10 + (.5) * 0 = $5. A risk averse person would rather take a certain smaller amount than the expected amount then engage in the gamble.
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
The expected utility of the gamble would be less than a value on that riskaverse person's utility curve (therefore within the area bound by the curve), and therefore of less utility. But for the riskseeking person, it's the exact opposite situation. You'd almost have to pay the risklover to not take the gamble. Then the expected utility of the gamble would fall above the utility curve, and therefore of more greater utility
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
Risk averse, shows decreases increases in utility here
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
dw:1330492155490:dw Risk loving shows increasing increases in utility here
 2 years ago

dpflanBest ResponseYou've already chosen the best response.2
dw:1330492198982:dw Risk neutral is doesn't care!
 2 years ago
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