Question

A person is said to be risk averse if he or she

prefers a certain amount of return over an opportunity to receive an equal but uncertain amount of return.

will give up a certain amount of return in exchange for an opportunity to receive an equal amount of return representing expected or average value of an uncertain event.

will give up a certain amount of return in exchange for an opportunity to receive an equal or lower amount of return representing expected or average value of an uncertain event.

will give up a certain amount of return in exchange for an opportunity to receive an equal or greater amount of return representing expected or average value of an uncertain event.

Answer 1

## A person is said to be risk averse if he or she :
Answer : (A)

prefers a certain amount of return over an opportunity to receive an equal but uncertain amount of return.

Reason : A person who is risk-averse would have a diminishing marginal utility of income. While, a risk lover would prefer an uncertain income to a certain income when the expected value of that uncertain income equals the certain income, it will be the exact opposite for a risk averse person, i.e. He/She would prefer a certain income over an uncertain one, even if the opportunity is to receive an equal amount.