For a risk averse decision maker,the certainty equivalent is less than the expected monetary value (EMV).

Question

Quizplus · Accepted Answer

A risk-averse decision maker values the certainty of an outcome more than taking a risk, even if the expected monetary value (EMV) of the risky option is higher. Therefore, the certainty equivalent, which is the guaranteed amount they would accept instead of taking a risk, is less than the EMV of the risky option.

For a Risk Averse Decision Maker,the Certainty Equivalent Is Less