Two related ways to quantify a person's degree of risk aversion are the certainty equivalent and the risk aversion premium.

Question

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This statement is true. The certainty equivalent is the amount of guaranteed money that a risk-averse person would accept in place of taking a gamble, while the risk aversion premium is the amount of extra money that a person requires in order to take on a risky investment rather than a guaranteed one. Both concepts are commonly used to measure a person's degree of risk aversion.

Two Related Ways to Quantify a Person's Degree of Risk