What determines the magnitude of the risk premium, Microeconomics

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What determines the magnitude of the risk premium

Problem

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?

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.

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