Figure: Differences in Risk Aversion

question 76

Multiple Choice

Figure: Differences in Risk Aversion
(Figure: Differences in Risk Aversion) Based on the information in the figure Differences in Risk Aversion, which of the following statements is correct?

• A)Ernest will gain more from insurance than will Salvatore.
• B)Salvatore will gain very little from an increase in income compared with Ernest but will lose a lot of utility from a fall in income.
• C)Ernest is more risk-averse than Salvatore.
• D)If either Ernest or Salvatore buys insurance, adverse selection will occur.

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Definitions:

Proximate Cause

A legal concept that establishes the cause of an injury as being sufficiently related to an actionable event or condition to justify liability.

Securities and Exchange Commission

A U.S. federal agency responsible for enforcing federal securities laws and regulating the securities industry and the nation's stock and options exchanges.

Financial Statement

A formal record of the financial activities and position of a business, person, or other entity, typically including balance sheets, income statements, and cash flow statements.

Constructive Fraud

Deception or misrepresentation made without the intent to deceive, usually due to neglect or failure to fulfill a duty, which causes harm to another party.