What determines the magnitude of the risk premium

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1. Suppose that a risk-averse decision maker faces a choice of two lotteries, 1 and 2. The lotteries have the same expected value, but Lottery 1 has a higher variance than Lottery 2. What lottery would a risk-averse decision maker prefer?

2. What is a risk premium? What determines the magnitude of the risk premium?

Reference no: EM131251101

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