A manager supervises five experimental projects. Each has a 50-50 chance for producing an innovative, successful new product. The teams that are developing each project work separately, so the success of one project is independent of the success of other projects. A successful project returns 10 times the amount invested. Which should the manager choose: invest her full budget in one project, or split it evenly across all 5?
(a) Compare her options in terms of expected values.
(b) Compare her options in terms of risk, in the sense of the chances that she will have nothing to show for investing her budget in some or all of these projects.

  • CreatedJuly 14, 2015
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