It can be seen that the Certainty Equivalent
appears to reach its asymptotic value just after the Expected Utility achieves its maximum level.
00 WTA payment) on gender, Task-2 performance, Task-l-to-2 performance improvement, Task-2 selfrank, the lottery certainty equivalent
, and a task-order dummy.
Hence, the certainty equivalent
CE corresponds to the amount of payoff whose utility U(CE) equals the expected value of the utility of the payoff distribution [L.
The certainty equivalent
in equation (11) is used to formulate the participation and incentive constraints.
6 yields the certainty equivalent
of each insurance firm:
The certainty equivalent
of the optimized portfolio is very high when compared to the value and equal weighted portfolios, the first is 24% in sample and 18% out of sample and the last two are -0.
Prior to the terminal set of nodes, the value of the investment conditional on survival is given by its certainty equivalent
, which we define as the current value of a risk-free security that matures at time T and provides a guaranteed level of utility equal to the expected utility of holding the hedge fund.
Partners were classified as Risk Seeking in the litigation settlement decision if their response to the Certainty Equivalent
settlement offer was less than the theoretical indifference point, i.
The absence of uncertainty means that actual, expected and certainty equivalent
rates of return are all the same.
In this case, the certainty equivalent
of the 50 percent bond and the 50 percent stock allocation is $469,000, and the certainty equivalent
of the 100 percent stock portfolio is $686,000.
In the second, we adjust the expected cash flows for risk to arrive at what are termed risk-adjusted or certainty equivalent
cash flows which we discount at the riskfree rate to estimate the value of a risky asset.
1) An alternative approach to deal with uncertainty in capital budgeting is to identify certainty equivalents
for the uncertainty parameters in a project (such as selling price, demand, capital investment) and then discount the certainty equivalent
net cash flows using a risk free rate.
CARA preferences combine with normally distributed compensation to allow for a convenient certainty equivalent
where [Mathematical Expression Omitted] = ordinal certainty equivalent
consumption a la Selden  which is defined as:
8) It is a bias that I have tried to avoid by exploiting the concept of certainty equivalent
in the decision-making calculus of the market participants.