Certainty equivilance

[JohnCrover]

How do I use CE? The way I have been going about using it is by using my CE as expendable cash.
Here's an example: I go on a trip to Vegas, Spend $400 on the hotel, stay there 3 nights. I need to generate $400 worth of CE to be safe and to pay for the trip. While my EV may be higher, I need to generate at least $400 in CE to have the trip paid for comfortable.
Am I using CE correctly?

 

[Dummy]

No. CE is the amount you would take to not play because that certain hourly is worth more than a highly variable long term hourly that is higher. I would want my CE to be significantly higher than expenses.

 

[Ed Teller]

CE can be considered EV that has been game risk adjusted and is a valid (and perhaps better) method of evaluating a game.

 

[sagefr0g]

my take on CE .

Certainty Equivalent:

the decision point at which someone might take a gamble with a given expectation over a certain guaranteed payoff.

example:

slickster offers you two choices, you pay some amount Z to partake in either choice 1 or choice 2, choice 1 you take a guaranteed payoff of X or choice 2 where on say, a coin flip (or some sort of gamble) you get a payoff of either Y if heads or zero if tails. the idea being that for some value of Z and Y>X there will come a point where one would make the decision to take the gamble over the certain payoff. that point is one’s certainty equivalent.

note: if slickster is not so slick, there may be occasions where Z < X and or Z<Y such that expectation is positive for either choice, but still one might take the gamble according to one’s certainty equivalent.

this begs the interesting question, what if it’s known that the long run is not existent or is existent for the above scenario. if the long run is not existent, might the gamble still be worthwhile?