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There are three types of risk preferences:
1. Lovers/seekers
Such individuals are referred to as risk takers. They prefer more risky investments. For them, marginal utility of money is increasing that is each addition unit of money spent will give more satisfaction.
If the certainty equivalent is higher than the expected value, the farmer is said to be risk taker this means that he/she is willing to accept a lower income on average than a certain income because he/she likes risks and prefers to take the gamble.
2. Risk averters
These are individuals who prefer less risky investments. The marginal utility of money is diminishing. The farmer is said to be risk averse when he/she prefers to have lower certain income than having an average a higher uncertain income.
3. Risk Neutral
This is an individual who is indifferent to risk. For such an individual, the marginal utility of money is constant. If the expected money value is equal to the certainty equivalent, the farmer is said to be risk neutral; he/she is indifferent between a certain income and the same expected value of the two uncertain value incomes.
Dullayo answered the question on May 11, 2018 at 10:44
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