Figure: Differences in Risk Aversion (Figure: Differences in Risk

question 179

Multiple Choice

Figure: Differences in Risk Aversion (Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion.An important reason Ernest and Salvatore may differ in their aversion to risk is that they may differ in:

• A)how their marginal utility is affected by income.
• B)their understanding of risk.
• C)their initial wealth holding or initial income level.
• D)how their marginal utility is affected by income and in their initial wealth holding or initial income level.

---

Definitions:

Least Squares Line

A line of best fit determined by minimizing the sum of the squares of the vertical deviations from each data point to the line.

Weight

A measurement of the importance or influence that a specific element has within a set of data or model.

Height

A measurement of how tall an individual or structure is, typically measured from base to top.

Method Of Least Squares

A mathematical procedure for finding the best-fitting curve to a given set of points by minimizing the sum of the squares of the offsets ("the residuals") of the points from the curve.