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14. Fill in the blank: A concave utility function (one which exhibits decreasing marginal returns tic of A. Risk neutrality C. Risk aversion D. Irrationality E. The endowment effect 18. The Axiom of Independence prevents what pathology of decision making? A. Inability to make a decision of any kind for some choice sets B. Inability to make choices under risk C. Obession with infinitely improbable alternatives D. Neglecting base rates E. Manipulation by framing effects

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14. A concave utility function that exhibits decreasing marginal returns is an characteristics of Risk aversion. A risk averse investor prefers dislikes risk, and therefore they prefer lower return with known risks than higher return on investment with unknown risk. An investor will be risk averse, if and only if the utility function is concave.

Answer: option C

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