Imagine there are two free agent quarterbacks available. They both cost the same price, but you only have the money to sign one. Assume touchdown passes alone are a proxy for performance. Player 1 has a 20% chance of throwing 20 TD passes and a 20% chance of throwing 25, a 25% chance of throwing 32, a 20% chance of throwing 38, and a 15% chance of throwing 45. Player 2 has a 5% chance of throwing 10 TD passes, a 5% chance of throwing 15, a 20% chance of throwing 25, a 30% chance of throwing 30, a 35% chance of throwing 40, and a 5% chance of throwing 55 and breaking the all-time record.
a) Which player has the highest expected return?
b) Which player would represent the riskier investment?
c) Which player would you choose?
d) What does this say about your risk preferences?