Risk aversion Certainty equivalence: a risk premium c(Fu) make it indifferent with a lottery with FO. u(C(F, u)=u(x)dF(x) Probability premium: an extra probability over the impartial probability, (x,E, u) l(x)=(+x(x2E,u)(x+E)+(x-(x,E2)(x-E)Risk aversion • Certainty equivalence: a risk premium c(F,u) make it indifferent with a lottery with F(.) . • Probability premium: an extra probability over the impartial probability, u c F u u x dF x ( ( , )) ( ) ( ) =  1 1 ( ) ( ( , , )) ( ) ( ( , , )) ( ) 2 2 u x x u u x x u u x = + + + − −         ( , , ) x u