Question

suppose you are thinking about funding a kickstarter campaign for a hybrid mechanical/digital calendar for which you are willing to pay $125. to receive a calendar, the company requires you to pledge $100. you think there is about an 80% chance of the company succeeding. if the company fails, you will not receive a refund. calculate the consumer surplus you obtain if the company succeeds to evaluate whether the bet is fair.

Answer 1

EV= 0.8 (125-100) + 0.2 (0-100) = 0

Therefore, this bet is reasonable, but a risk-averse person would not place it since they are hesitant to take risk , especially when the pay off is zero.

What is a risk?

Business risks are the chances that a company would have insufficient profits as a result of unpredict abilities, such as shifts in consumer preferences, strikes, increasing competition, shifts in governmental regulations, obsolescence, etc.

An organization's ability to create profits at the desired levels is threatened by hazards, which can also pose a long-term threat to the sustainability of the organization.

To learn more about Business risk

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