Answer to Question #151753 in Economics for sorcha

Question

(b) James has a utility function of the form: U(w) = w1/3
Louise has a utility function of the form: U(w) = ½ w2
In both utility functions, w denotes wealth. Can you say if James and Louise are risk
neutral, risk averse, or risk loving? Justify your answer. (10 marks)

Answer 1

$U'(w)=\frac{1}{3*w^{2/3}}$ increasing of w lead to decrease of utility growth. It means James is a risk averse

$U'(w)=w$ utility growth equal wealth it means Loise is a risk neutral