People differ in their preferences toward risk. In (a),a consumer's marginal utility diminishes as income increases. The consumer is risk averse because she would prefer a certain income of $20,000(with a utility of 16)to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000 [and expected utility(E(u))of 14]. In (b),the consumer is risk loving:She would prefer the same gamble(with expected utility of 10.5)to the certain income (with a utility of 8). in (c)the consumer is risk neutral and indifferent between certain events and uncertain events with the same expected income• People differ in their preferences toward risk. ✓ In (a), a consumer's marginal utility diminishes as income increases. The consumer is risk averse because she would prefer a certain income of $20,000(with a utility of 16)to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000 [and expected utility(E(u) ) of 14]. ✓ In (b), the consumer is risk loving: She would prefer the same gamble(with expected utility of 10.5)to the certain income (with a utility of 8). ✓ in (c) the consumer is risk neutral and indifferent between certain events and uncertain events with the same expected income