What term best describes a payment above and beyond the expected outcome of a gamble which must be offered to a risk-averse individual to willingly accept the gamble?
A)Certainty equivalent
B)Risk equivalent
C)Risk premium
D)Risk preference payment
E)Certainty payment

Question

Quizplus · Accepted Answer

A risk premium is the additional payment offered to an individual to compensate for the risk they are taking by accepting a gamble. It is the amount that will make the individual indifferent between taking the gamble and receiving a certain outcome. A certainty equivalent is the guaranteed amount that an individual would accept instead of taking the gamble. Risk equivalent, risk preference payment, and certainty payment are not commonly used terms in finance or economics.

What Term Best Describes a Payment Above and Beyond the Expected