Question
Consider two individuals, Caleb and Delia. Caleb has preferences over wealth represented by a utility function uC(W)=lnW and Delia has preferences over wealth represented by
Consider two individuals, Caleb and Delia. Caleb has preferences over wealth represented by a utility function uC(W)=lnW and Delia has preferences over wealth represented by a utility function uD(W)=0.5(sqrtW). Using the Arrow-Pratt measure of risk aversion, what can you say (if anything) regarding the risk-aversion of these two individuals?
A) Caleb is more risk-averse than Delia.
B) Delia is more risk-averse than Caleb.
C) Both Caleb and Delia are equally risk-averse.
D) You would require the levels of wealth to make a statement about the risk-aversion of these individuals.
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