Question

The certainty-equivalent techniouve:

1) is a method which avoids the need to quantify risk perception.
2) Is an inexpensive method of deterhining an appropriate discount rate.
3) is particularly useful when final decisions are made by a committee.
4) none of the above.

Answer 1

The certainty-equivalent technique is used to adjust future cash flows for risk in investment decision making, and none of the given options correctly describe this method.

Step-by-step explanation:

The certainty-equivalent technique is a method used in decision making and investment analysis. This technique adjusts the future cash flows of an investment to account for risk, allowing a decision maker to work with a risk-free equivalent cash flow. When considering the options presented:

1. It does not avoid the need to quantify risk perception, since it directly deals with adjusting cash flows for risk.
2. It requires an analysis of the risk involved, so it isn't necessarily inexpensive.
3. It might not be specifically useful for decision making by a committee unless the committee values the risk adjustments made by this technique.

Considering the given choices, the correct answer to the question would be (4) none of the above.