The correct way is to calculate the expected value. Since there is little data, the expected value is equal at base +30.000. The expected volatility is zero in case A and unknown but not zero in case B so a risk averse person would gain some utility out of going A.

Note however as both options are not a raise as the expected value is equal to her current salary and if person X accepts, she will be highlighted as an example of wage discrimination against women.

Expected value is not necessarily the way to go. I would rather be paid 100k Currency Units per year than a 50% chance of 210k Currency Units and a 50% chance of zero. Expected utility is more to the point.

Note also that part of the (dis)utility of unpredictable compensation comes from things other than the actual monetary value. You might find it exciting not knowing what’s coming. Or you might find it anxiety-provoking. If it’s a bonus scheme, you might take some satisfaction in the feeling that if your hard work helps the company succeed then you will get a little bit of the gains; you might initially feel that way but then reflect on what a small fraction of the gains you’re getting and feel grumpy about it; etc.

The correct way is to calculate the expected value. Since there is little data, the expected value is equal at base +30.000. The expected volatility is zero in case A and unknown but not zero in case B so a risk averse person would gain some utility out of going A.

Note however as both options are not a raise as the expected value is equal to her current salary and if person X accepts, she will be highlighted as an example of wage discrimination against women.

Expected

valueis not necessarily the way to go. I would rather be paid 100k Currency Units per year than a 50% chance of 210k Currency Units and a 50% chance of zero. Expectedutilityis more to the point.Note also that part of the (dis)utility of unpredictable compensation comes from things other than the actual monetary value. You might find it exciting not knowing what’s coming. Or you might find it anxiety-provoking. If it’s a bonus scheme, you might take some satisfaction in the feeling that if your hard work helps the company succeed then you will get a little bit of the gains; you might initially feel that way but then reflect on what a small fraction of the gains you’re getting and feel grumpy about it; etc.