Discuss different forms of attitude of an individual towards risk. Use appropriate diagrams to compare a risk averse individual with a risk-loving individual.

An individual's attitude towards risk reflects how they evaluate uncertain outcomes when making decisions, particularly regarding wealth or income. In Intermediate Microeconomics, these attitudes are generally categorized into three main forms: risk aversion, risk neutrality, and risk-loving behavior. These attitudes are analyzed using utility theory, where utility is a measure of satisfaction or well-being derived from wealth or income.

Risk Aversion

A risk-averse individual prefers a certain outcome over an uncertain one with the same expected value. They exhibit diminishing marginal utility of wealth, meaning the additional satisfaction from an extra unit of wealth decreases as wealth increases. This is mathematically ______ _____ __________ ___ ___.
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