Question: Risk and uncertainty. a) Explain what certainty equivalent is. b) Show in a figure that a person, who is risk averse, has a smaller certainty

Risk and uncertainty. a) Explain what certainty equivalent is. b) Show in a figure that a person, who is risk averse, has a smaller certainty equivalent compared to a person, who is risk neutral. c) Calculate Arrow-Pratt absolute and relative risk aversion measurements for the following utility functions i) () = ii) () = 1.

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