A manager believes there is a 10 percent chance their firm will have to pay $1,000,000 and a 90 percent chance they will be found innocent and pay nothing except the legal fees of $200,000. If the manager chooses to not settle for $300,000 and to enter the litigation instead, which of the following is true?

Question

Quizplus · Accepted Answer

Choosing to enter litigation instead of settling for $300,000, despite the potential for a higher loss ($1,200,000 including legal fees), indicates a preference for risk over a certain outcome, which is characteristic of a risk lover.

A Manager Believes There Is a 10 Percent Chance Their