Young screenwriter Carl Draper has just finished his first script. It has action, drama and humour, and he thinks it will be a blockbuster. He takes the script to every film studio in town and tries to sell it but to no avail. Finally, ACME studios offers to buy the script for either

(a) $5,000 or

(b) 1 per cent of the film’s profits. There are two decisions the studio will have to make. First is to decide if the script is good or bad, and second if the film is good or bad. First, there is a 90 per cent chance that the script is bad. If it is bad, the studio does nothing more and throws the script out. If the script is good, they will shoot the film.

After the film is shot, the studio will review it, and there is a 70 per cent chance that the film is bad. If the film is bad, it will not be promoted and will not turn a profit. If the film is good, the studio will promote heavily; the average profit for this type of film is $10 million. Carl rejects the $5,000 and says he wants the 1 per cent of profits. Was this a good decision by Carl?