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I chose a because the curve will point upwards (similar to x ^ n, where n > 0). However OA is C. I understand why C is correct, but why is A wrong? I’d appreciate your thoughts. I googled this a bit, and it seems in all Youtube Video and webpages, people are just spitting what text says without explaining why “greatest convexity” is wrong.
I’d sincerely appreciate thoughts.
Open your book page 346, Exhibit 12 show you the indifference Curves for different profiles of investor, maybe visual will help you understand the answer, also you should pay attention to the wording used in the question
The slope of the indifference curves tells you how risk averse the investor is: the steeper the slope, the more risk averse.
The curvature (convexity) of the indifference curves tells you how much the risk aversion _ changes _ when the risk level changes.
An investor who is uniformly extremely risk averse will have indifference curves that are nearly vertical straight lines: no convexity at all.