The situation
A pilot earns ₹9 lakh with 40% probability and loses ₹3 lakh otherwise. An alternative earns ₹1.5 lakh with certainty. The loss budget is ₹2 lakh.
Your task
Which has higher expected value and which satisfies the loss constraint?
Reveal step-by-step solution
Set up the problem
Weight the gain and the signed loss by their probabilities.
Work through the numbers
Pilot EV = 0.40 × ₹9 + 0.60 × (−₹3) = ₹1.8 lakh. Alternative EV = ₹1.5 lakh.
Interpret the result
The pilot has greater expected value but can breach the loss budget. The certain option fits the stated constraint.
What to remember
Report the expected outcome and downside separately. Check that scenario probabilities sum to one.