Question

As the manager, you have three employees, Mrs. Stable, Miss. Mediocre, and Mr. HiRisk, for a challenging job. Mrs. Stable has a success chance to be 90%, while the profit is $30,000 if she did it successfully and the loss is $35,000 if she failed. Miss. Mediocre has a success chance to be 50%, while the profit is $100,000 if she did it successfully and the loss is $50,000 if she failed. Lastly, Mr. HiRisk has a success chance to be 20%, while the profit is an amazing $1,000,000 if he did it successfully and the loss is $220,000 if he failed. In terms of profits and probability theory, which employee should you pick and why?

Answer 1

Success probability of Mrs. Stable = 0.9

So, failure probability of Mrs. Stable = 1 - 0.9 = 0.1

Therefore, Expected profit of Mrs. Stable = 0.9*30,000 - 0.1*35,000 = 23,500

Success probability of Miss. Mediocre = 0.5

So, failure probability of Miss. Mediocre = 1 - 0.5 = 0.5

Therefore, Expected profit of Miss. Mediocre = 0.5*100,000 - 0.5*50,000 = 23,500 = 25,000

Success probability of Mr. HiRisk = 0.2

So, failure probability of Mr. HiRisk = 1 - 0.2 = 0.8

Therefore, Expected profit of Mr. HiRisk = 0.2*1,000,000 - 0.8*220,000 = 24,000

Therefore we can see that expected profit of Miss. Mediocre is highest among all. So you should pick Miss. Mediocre