ⓘ Exponential utility. In economics and finance, exponential utility is a specific form of the utility function, used in some contexts because of its convenience ..

                                     

ⓘ Exponential utility

In economics and finance, exponential utility is a specific form of the utility function, used in some contexts because of its convenience when risk is present, in which case expected utility is maximized. Formally, exponential utility is given by:

u c = { 1 − e − a c / a ≠ 0 c a = 0 {\displaystyle uc={\begin{cases}1-e^{-ac}/a&a\neq 0\\c&a=0\\\end{cases}}}

c {\displaystyle c} is a variable that the economic decision-maker prefers more of, such as consumption, and a {\displaystyle a} is a constant that represents the degree of risk preference (a > 0 {\displaystyle a> 0} for risk aversion, a = 0 {\displaystyle a=0} for risk-neutrality, or a < 0 {\displaystyle a

                                     
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