A certainty equivalent income:
A)means that there is some amount of income that one will accept with certainty rather than face a gamble.
B)is an application of the continuity of preferences assumption.
C)is calculated using the marginal utility of wealth.
D)means that at high enough income levels there is always an amount of risk that makes one reject a gamble.

Question

Quizplus · Accepted Answer

A certainty equivalent income is the amount of income that an individual is willing to accept with certainty rather than facing a gamble. It represents the individual's risk aversion and is often used in decision-making under uncertainty. The other options are not applicable to defining a certainty equivalent income.

A Certainty Equivalent Income