Consider a risk-neutral agent who maximizes expected utility of wealth facing a lottery with a "bad" (wealth remains the same) and a "good" (wealth increases by a small amount) outcome (both with non-zero probabilities). For this agent, O the certainty equivalent will be zero, but the risk premium will be greater than zero. O the certainty equivalent will be greater than zero, but the risk premium will be zero. O the certainty equivalent will be greater than zero, but the risk premium will be less than zero. O the certainty equivalent will be less than zero, but the risk premium will be greater than zero, O the certainty equivalent and the risk premium will both be zero. O there is not enough information to make statements about the certainty equivalent and the risk premium.

Consider a risk-neutral agent who maximizes expected utility of wealth facing a lottery with a "bad" (wealth remains the same) and a "good" (wealth increases by a small amount) outcome (both with non-zero probabilities). For this agent, O the certainty equivalent will be zero, but the risk premium will be greater than zero. O the certainty equivalent will be greater than zero, but the risk premium will be zero. O the certainty equivalent will be greater than zero, but the risk premium will be less than zero. O the certainty equivalent will be less than zero, but the risk premium will be greater than zero, O the certainty equivalent and the risk premium will both be zero. O there is not enough information to make statements about the certainty equivalent and the risk premium.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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