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Results tagged with utility
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user 41001
Utility, or usefulness, is the (perceived) ability of something to satisfy needs or wants.
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risk aversion and the law of diminishing marginal utility
I see many plots where x is wealth and y is utility. If a person is risk averse, he has a concave line on the plot. If the person is risk neutral, her line on the plot is straight. … On the other hand, I see from lecture notes and other websites relating the concept risk averse to risk to the concept of diminishing marginal utility of consumption (such as eating more cookies). …
- 115
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Constant relative risk aversion for wealth spanning from negative to positive
I read some sources and it seems with constant relative risk aversion, we usually use the utility function:
$$U(W) = \frac{W^{1-r}}{1-r}$$
But then (1) the utility function is not defined at $W=0$ whenever … So my question is (1) Does such utility function exist? (2) An example if it does. …
- 115