Carrie's Attitude towards Risk in Financial Decision-making

A

In finance, the term "certainty equivalent" refers to the guaranteed amount of money that an individual is willing to accept instead of taking a chance on a risky investment. It represents the amount of money that provides the same level of utility or satisfaction as a risky investment with an uncertain outcome.

When Carrie's certainty equivalent is less than the expected value of the risky gamble, it suggests that she is risk-averse. This means that she is willing to give up some expected return in exchange for a guaranteed outcome. She prefers to avoid the risk of losing money, even if it means giving up the opportunity to earn a higher return.

On the other hand, if her certainty equivalent was greater than the expected value of the risky gamble, it would suggest that she is risk-seeking, which means that she is willing to take on greater risk in exchange for the possibility of earning a higher return.

If her certainty equivalent is equal to the expected value of the risky gamble, then she is considered risk-neutral. This means that she is indifferent to risk and is willing to accept any investment opportunity regardless of its level of risk.

Therefore, the correct answer to the question is A) Risk aversion.