Question: 1. Public Policy three outcomes problem.
Relevant data
A. Present value of net benefits = $4,000,000 (probability = 0.85)
B. Present value of net benefits = $ 1,000,000 (probability = 0.10)
C. Present value of net benefits = $ -$10,000,000 (probability = 0.05)
D. Not pursuing the policy results in a present value of benefits = $ 0
a. Suppose society is risk neutral. Should the policy be pursued or trashed? Why?
b. What if society is risk averse? Would you be more or less likely to pursue the policy? Why