An individual is said to risk averse if his/her certainty equivalent for a risky prospect is:
A)always negative.
B)exactly equal to the expected value.
C)equal to the average probability of the outcomes.
D)always zero.
E)less than its expected value.

Question

Quizplus · Accepted Answer

A risk-averse individual is willing to pay a premium to avoid risk. Therefore, their certainty equivalent for a risky prospect will be less than its expected value.

An Individual Is Said to Risk Averse If His/her Certainty