4. Decision Analysis

Utility Theory — Quiz

Test your understanding of utility theory with 5 practice questions.

Practice Questions

Question 1

In utility theory, what does a concave utility function indicate about a decision-maker's risk preference?

Question 2

If a decision-maker's utility function is given by $U(W) = W^{0.5}$, what does this imply about their risk preference?

Question 3

What does the term 'risk premium' refer to in utility theory?

Question 4

In a scenario where a decision-maker is indifferent between a certain outcome and a gamble with the same expected value, what does this indicate?

Question 5

If a decision-maker prefers a certain outcome over a gamble with a higher expected value, what does this suggest about their risk preference?