Risk Aversion
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Define Risk Aversion. Consider a risk-averse von Neumann-Morgenstern individual having wealth w who must decide whether to accept or decline a simple gamble offering a chance of winning or losing a small amount of wealth h with probabilities p and (1-p), respectively. Prove that p must be greater than (please see the attached file) , where (please see the attached file) is the individual's measure of absolute risk-aversion, in order to induce the individual to accept the gamble.
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Define Risk Aversion. Consider a risk-averse von Neumann-Morgenstern individual having wealth w who must decide whether to accept or decline a simple gamble offering a chance of winning or losing a small amount of wealth h with probabilities p and (1-p), respectively. ...
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