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This Demonstration shows how the risk premium (RP) and the certainty equivalent (CE) change with the degree of risk aversion , the amount of the awards, and the probabilities that the various states will occur. The variables and are the two outcome amounts, , and is a measure of risk aversion in the equation .
Contributed by: John Horton (March 2011)
Open content licensed under CC BY-NC-SA
Wolfram Demonstrations Project
Published: March 7 2011