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CE(Bet 1) = CE(Bet 2) U(Bet 1) = U(Bet 2) Definition: RISK PREMIUM = EMV – CE. Interpretation: The Risk Premium is the amount of money your are willing to give up to avoid risk (= uncertainty). Steps in determining Risk Premium of a Bet: Calculate EMV of Bet. Calculate EU of Bet. Determine CE of BET. RP = EMV-CE Risk Averse Risk Premium is ... ................
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