The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Certainty Equivalence

  • Xavier Freixas
Reference work entry


In order to take a decision in an uncertainty context, it is necessary, from a theoretical point of view, to build a model and specify all the consequences in every possible state of the world. In applied work this method is much too involved.

JEL Classifications

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  1. Henry, C. 1974. Investment decisions under uncertainty: The irreversible effect. American Economic Review 64: 1996–2012.Google Scholar
  2. Malinvaud, E. 1969. First order certainty equivalence. Econometrica 37: 706–718.CrossRefGoogle Scholar
  3. Simon, H. 1956. Dynamic programming under uncertainty with a quadratic criterion function. Econometrica 24: 74–81.CrossRefGoogle Scholar
  4. Theil, H. 1954. Econometric models and welfare maximization. Weltwirtschaftigsches Archiv 72: 60–83.Google Scholar
  5. Theil, H. 1957. A note on certainty equivalence in dynamic planning. Econometrica 25: 346–349.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Xavier Freixas
    • 1
  1. 1.