Daniel Bernoulli proposed that a mathematical function of probability should be used to correct the expected value, accounting for risk aversion, where the risk premium is higher for low-probability events than the difference between the payout level of a particular outcome and its expected value.
This provides a way to account for risk aversion, where the risk premium is higher for low-probability events than the difference between the payout level of a particular outcome and its expected value. Daniel Bernoulli proposed that a mathematical function should be used to correct the expected value depending on probability.
Daniel Bernoulli proposed that a mathematical function should be used to correct the expected value depending on probability. This provides a way to account for risk aversion, where the risk premium is higher for low-probability events than the difference between the payout level of a particular outcome and its expected value.
Daniel Bernoulli proposed that a mathematical function should be used to correct the expected value depending on probability. This provides a way to account for risk aversion, where the risk premium is higher for low-probability events than the difference between the payout level of a particular outcome and its expected value.