Mark has two alternatives. There is a 50 percent chance that he will earn $120,000 if he accepts a government contract. If he decides not to accept the contract and instead continues on his present project, he has an 80 percent chance of earning $100,000. If Mark is a perfectly rational decision maker, which of the following statements is TRUE?

Question

BlackTom AI · Accepted Answer

To evaluate Mark’s decision like a perfectly rational decision maker, start by comparing the expected values of the two options.
Option assessment:
- Government contract: there is a 50 percent chance of earning $120,000, so the expected value is 0.5 × 120,000 = $60,000.
- Present project: there is an 80 percent chance of earning $100,000, so the expected value is 0.8 × 100,000 = $80,000.
Now, analyze each option statement:
A) He will revise his earnings estimate on the government contract to make it more attractive. This asserts a belief revision to increase attractiveness, which a perfectly rational agent could do if new information were provided or probabilities changed. However, given the static probabilities and payoffs as stated, there’s no basis in the scenario that he must necessarily revise his estimate; the statement is not a definitive truth about rational decision making in this setup.
B) His expected value of continuing on the present project is $80,000. This directly reflects the calculated EV for the present project (0.8 × 100,000 = 80,000) and is a precise, true characterization of the rational choice under the given numbers.
C) He will attempt to satisfice. Satisficing is choosing a first acceptable option rather than the optimal one, which contradicts the notion of a perfectly rational (maximizing) decision maker in this context. Therefore this is incorrect.
D) He will accept the government contract. Since the government contract’s EV is $60,000, which is less than the $80,000 EV of continuing the present project, accepting the contract would not maximize expected value. Hence this is not the rational choice here.
E) He will ignore economic criteria in making his decision. A perfectly rational decision maker uses economic criteria (EVs) to decide; ignoring them would be inconsistent with rational behavior, so this option is incorrect.
In summary, among the options, the one that aligns with maximizing expected value given the data is the statement about the EV of continuing the present project being $80,000, while all other choices fail to reflect rational, EV-based decision making under the scenario.

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