Friedman-Savage Utility Function

The Friedman-Savage utility function describes how people value outcomes with different levels of risk and reward. It suggests that individuals may have a concave utility for moderate wealth—preferring safer options—but become convex at higher wealth levels, making risky choices more attractive again. This pattern explains why people sometimes avoid small risks but seek large gambles, such as lotteries, due to their changing attitudes toward risk depending on their current wealth. Essentially, it captures the idea that our willingness to take risks varies with our financial situation, showing a non-linear relationship between wealth and risk preference.