Fig. 1.

Utility functions implied by environments with different portions of systematic risk and different levels of idiosyncratic risk: $\lambda =0.1$ represents a low level of systematic risk, $\lambda =0.9$ represents a high level of systematic risk, $\mu =1$ represents a low level of idiosyncratic risk, and $\mu =3$ represents a high level of idiosyncratic risk. All nine utility functions are normalized by setting $U_{\lambda ,\mu }\left(0\right)=0$ and $U_{\lambda ,\mu }\left(10\right)=10$.