A division manager is presented with two new project proposals. Both projects are projected to cost $60,000. Project 1 is predicted to have a 50% chance of generating $100,000 in revenue and a 50% chance of generating only $50,000 in revenue. Project 2 is predicted to have a 75% chance of generating $100,000 in revenue and a 25% chance of totally flopping and generating effectively no revenue.
If she is risk-averse, which of the two will she prefer? Why?
