Economics · Microeconomics
Consider an individual with a twice-differentiable utility function u(w). I. Absolute risk aversion is given by -u''(w)/u'(w). II. Constant absolute risk aversion (CARA) implies linear utility. III. Decreasing absolute risk aversion (DARA) implies increasing demand for risky assets with wealth. IV. Risk neutrality implies zero risk premium. Which of the statements above are correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1I, III and IV only✓
- 2I and IV only
- 3II and III only
- 4I, II, III and IV
Correct answer
I, III and IV only
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