It is the minimum amount of money that the economic agent is willing to accept (E), as an alternative to face a prospect of risk with uncertain outcomes of a risky investment (X).

If the economic operator is risk neutral (indifference to risk), it equals the present expected value of the asset

    E [U (X)] = U [E (X)]

On the other way, when the equality is not verified, the economic agent is risk adverse (or risk-loving) and therefore the certainty equivalent will be respectively less than (or greater than) the present expected value of the asset.

    E [U (X)]<U [E (X)]   Risk adversion

    E [U (X)]>U [E (X)]   Risk-loving



HARDAKER J. B. and HUIRNE  R. B. M., Coping with risk in Agriculture, CABI, 2004.

MIT OpenCourseWare, Microeconomic Theory III, Spring 2010.


Editor: Giuliano DI TOMMASO - ASSONEBB
  • Privacy Policy
  • Cookie Policy
  • Publication Ethics and Malpractice

Copyright © 2019 ASSONEBB. All Rights reserved.