Understanding Risk-Aversion through Utility Theory
Intuition on Risk-Aversion and Risk-Premium Let’s play a game where your payo is based on outcome of a fair coin You get $100 for HEAD and $0 for TAIL How much would you pay to play this game? You immediately say: \Of course, $50" Then you think a bit, and say: \A little less than $50" Less because you want to \be compensated for taking the risk"
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