Certainty Equivalence and Inequivalence for Prices

Kenneth Arrow

Chapter 2 in Value and Capital: Fifty Years Later, 1991, pp 41-63 from Palgrave Macmillan

Abstract: Abstract A basis for the analysis of economic behaviour under uncertainty has existed ever since Daniel Bernoulli’s famous paper (1738). Indeed, Bernoulli applied his expected-utility theory to explaining the de mand for marine insurance—the problem, of course, being to explain positive demand for a risk with negative expected value. Bernoulli saw clearly that both the Gedanken evidence of the St Petersburg paradox and the real-world purchase of insurance were simply state ments that the certainty-equivalent of a risk was not its expected value; his clear analysis led him to the synthesis of an alternative theory of behaviour.

Keywords: Risk Aversion; Production Plan; Production Vector; Price Vector; Output Price (search for similar items in EconPapers)
Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-1-349-11029-2_3

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DOI: 10.1007/978-1-349-11029-2_3

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