Definition:

The amount of payoff (e.g. money or utility) that an agent would have to receive to be indifferent between that payoff and a given gamble is called that gamble's 'certainty equivalent'. For a risk averse agent (as most are assumed to be) the certainty equivalent is less than the expected value of the gamble because the agent prefers to reduce uncertainty.(Econterms)

Terms related to The Certainty Equivalent:

• Certainty eqiuvalence principle

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Books on The Certainty Equivalent:

• Sargent, Thomas J. 1979. Macroeconomic Theory. New York: Academic Press.

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