certainity equivalent | risk premium | risk aversion| expected utility | expected value |

Certainty equivalent (CE) of a risky activity is the amount of money for which an individual is indifferent between the gamble and the certain amount. In other words, it is the amount of money received with certainty giving a utility level to the individual equivalent to the level attained by risky gamble. It is also called the selling price, from the fact that it serves as the definite price at which the activity could be sold, or at which individual will be indifferent between facing and selling a gamble.

Risk Premium. It is simply the amount which the agent is willing to forego in order to be indifferent in her choice between a risky gamble and the one with a certain return. The notion of a risk premium is directly applicable to insurance policies. An individual who purchases an insurance policy willingly pays a sum of money, known as an insurance premium (or Risk premium), in order to guarantee a certain level of monetary value generally associated with some type of risky activity.
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