Explain the relationship between marginal utility of risk and decision-making under uncertainty.

Explain the relationship between marginal utility of risk and decision-making under uncertainty.

The relationship between marginal utility of risk and decision-making under uncertainty is that as the level of uncertainty or risk increases, the marginal utility of each additional unit of a risky outcome decreases. This means that individuals are less willing to take on additional risk as they perceive the potential negative consequences to outweigh the potential benefits. Therefore, decision-making under uncertainty is influenced by the diminishing marginal utility of risk, leading individuals to make more cautious choices and potentially avoid risky situations.