Question: Suppose that an individual is risk averse and has to choose between $ 100 with certainty and a risky option with two equally likely outcomes:

Suppose that an individual is risk averse and has to choose between $ 100 with certainty and a risky option with two equally likely outcomes: $ 100 – x and $ 100 + x. Use a graph (or math) to show that this person’s risk premium is smaller, the smaller x is (the less variable the gamble is).

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