Following a freak accident involving one of its products, DPD Inc. was sued by one of its customers. The customer's attorneys oered to settle and drop the suit if DPD would agree to pay their client $500,000. DPD's lawyers advised DPD that, in their opinion, DPD had a 50% chance of winning its case at trial. If they lost, however, damages were likely to be set at $500,000. Furthermore, there was some chance that the jury would nd them negligent and assess punitive damages. In fact, the lawyers believed that, if DPD lost, there was a 10% chance that the jury would nd them negligent and ne them $2 million instead of the $500,000. DPD's lawyers estimate that legal fees for taking the case to trial (fees that

DPD must pay itself under US law regardless of whether it wins or loses) would total $125,000. Giventhese gures, DPD would

A. never settle under any risk preference.

B. go to trial if they are risk neutral.

C. agree to settle for $500,000 if they are risk neutral.

D. only agree to settle for less than $450,000 if they are risk averse.

E. settle for $450,000 if they are risk loving.