1. Suppose a proposed public policy could result in three possible outcomes:

(1) present value of net benefits of $4,000,000, (2) present value of net benefits of $1,000,000, or (3) present value of net benefits of –$10,000,000 (i.e., a loss).

Suppose society is risk-neutral and the probability of occurrence of each of these three outcomes are, respectively, 0.85, 0.10, and 0.05, should this policy be pursued or trashed? Why?