A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,a decision maker who is risk neutral would
A)choose project A.
B)choose project B.
C)not be able to make a decision.
D)change probabilities because no decision maker is ever risk neutral.

Question

A firm is considering two projects,A and B,with the following probability distributions for profit.  Given the above,a decision maker who is risk neutral would
A)choose project A. 
B)choose project B. 
C)not be able to make a decision. 
D)change probabilities because no decision maker is ever risk neutral.

Quizplus · Accepted Answer

A risk neutral decision maker chooses the project with the highest expected value of profit. In this case, the expected value of profit for project B is higher than that of project A ($70,000 > $68,000). Therefore, the risk neutral decision maker would choose project B.

A Firm Is Considering Two Projects,A and B,with the Following