Therefore, the MCPT certainty equivalent
return difference between the constant mix and the guaranteed contracts is even larger in this case.
We regress subjects' choice ($0.50 PR or $2.00 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.
The closed form solution is characterized by using the certainty equivalent
in the team manager's maximization problem.
B.4 can be interpreted as the value of demand information because it represents the difference between certainty equivalents
in the presence and absence of demand information.
The VW portfolio in table 3 is for [gamma] = 5, we do not show its results for other relative risk aversion because the only value that respond to a variation in [gamma] is the certainty equivalent
, which will be shown during the discussion.
We use [H.sub.T-1,j] to express the certainty equivalent
of the hedge fund investment at node (T - 1, j), so that the investor is indifferent between staying in the fund at node (T - 1, j) and exchanging for cash equal to [H.sub.T-1,j], which is then deposited in a risk-free account.
The partners' mean response to the Certainty Equivalent
litigation scenario, i.e., the dollar amount they would be willing to pay to settle and to avoid having the case go to the jury, was $460,000.
The certainty equivalent
rate of return is defined from these in equation (2).
In that context, Bernoulli unveiled the notion of a certainty equivalent
, a guaranteed cash flow that we would accept instead of an uncertain cash flow and argued that more risk averse investors would settle for lower certainty equivalents
for a given set of uncertain cash flows than less risk averse investors.
The principal minimizes the total expected payments subject to the following constraints: First, agent i receives at least [[theta].sub.i], the certainty equivalent
associated with his next best employment opportunity, i.e., the contract is individually rational ([IR.sub.i]).
Note that Q is nothing but the consumer's certainty equivalent
income in the second period.
I believe that Karp/Perloff assumption of risk-neutrality imparts a bias to their conclusions.(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.