Question

What would a risk-seeking person's utility curve look like? What would a risk-averse person's utility curve look like?

Answer 1

I guess, how do they compare to someone who is risk neutral

Answer 2

Cool stuff, we have two functions for utility here: (1.) risk-seeking or risk-loving, and (2.) risk-averse. They are opposing concepts, so their functions will essentially be near inverses of each other.

Answer 3

What happens when you're risk-averse?

Answer 4

seems that you are willing to forgo opportunities to gain that have uncertain probabilities

Answer 5

sorry, *unwilling

Answer 6

heh, right, so risk-seeking is *willing

Answer 7

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.

Answer 8

The expected utility of the gamble would be less than a value on that risk-averse person's utility curve (therefore within the area bound by the curve), and therefore of less utility. But for the risk-seeking person, it's the exact opposite situation. You'd almost have to pay the risk-lover to not take the gamble. Then the expected utility of the gamble would fall above the utility curve, and therefore of more greater utility