You are considering an investment project

Statistics Mar 18, 2023

You are considering an investment project. Phase 1 requires $100,000 outlay, and will produce either $120,000 or $80,000 with equal probabilities. Once phase 1 is complete, you have the option to invest another $100,000 in phase 2. At the completion of phase 2, the payout will either be 20% higher than the phase 1 payout, or 10% less, also with equal probabilities. You may choose to a) not invest; b) invest in phase 1 and then decide later about phase 2; or c) commit to both phases today.

What is the best policy?

How much would you pay to know the phase 1 outcome if option b) were removed?