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    Decreasing marginal utility of money

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    6. A widely-used value function to represent the value of total assets to an individual is the natural logarithm of the assets; this means that the value of total assets of amount X is proportional to ln (X) (the natural logarithm of X). This value function is sometimes referred to in economics as the "decreasing marginal utility of money" value function. What does it say about how such a person values monetary gain? Is this person risk averse or not or is it possible to tell from this much information?

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    Utility is the quantitative measure of the value or importance that a person attributes to a particular entity, and it differs from person to person. Marginal utility is the difference in the utility value that a person perceives or experiences due to a unit increase in the number or quantity of the entity. "Decreasing Marginal Utility of Money" implies that as a person earns more and more money, the value or importance of the extra money earned decreases to him or ...

    Solution Summary

    The solution discusses the decreasing marginal utility of money.