Hello For a log utility function U'(W) is always greater than 0 and U''(W) is always less than 0 ( as W is always positive) . So is it correct to say that the log utility function can be always used for a risk averse investor and it cannot be applied for a risk seeking or a risk neutral investor? Is my assumption of W being always positive correct? I believe that even if a person takes a loan, the wealth he has should be positive and not negative.
Yes, a log utility function implies a risk averse investor. Yes, I would assume positive levels of wealth, especially with a log utility function as log w undefined for negative w! Good luck for the exam Aisha! Anna
