| 单词 | certainty equivalent |
| 释义 | certainty equivalent The certain outcome which would confer the same utility as an actual distribution of expected outcomes. For an investor with a linear utility function, the certainty equivalent of a distribution of uncertain outcomes equals the mean expected value of the uncertain outcomes; such an investor is risk-neutral. For an investor with decreasing marginal utility, the certainty equivalent is less than the mean expected outcome of a distribution of uncertain outcomes; such an investor is risk-averse. For example, if U = √x, where U is utility and x is the outcome, a project with equal chances of an outcome of 1 and 2 has an expected outcome of 1.5, but its expected utility is only (1 + √2)/2 = 1.207 approximately, and the certain outcome giving this utility is approximately 1.457 < 1.5. The excess of the mean expected outcome over its certainty equivalent measures the risk premium required to induce a risk-averse investor to undertake a project with an uncertain outcome. |
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