How Heuristics Can Impact Accounting for Uncertain Tax Positions

How do you approach a decision involving a variety of risk factors and rewards to move toward the superior advantage?

For example, you have to choose between (A) $10,000 with 33% probability, $9,600 with 66% probability, and $0 with 1% probability; and (B) $9,600 with 100% certainty.

The prediction of a long-standing economic theory addressing choice under risk, expected utility theory, is that you would choose Option A because its expected monetary value of $9,636 is greater than that of Option B, $9,600, calculated as follows: 10,000 * 0.33 + 9,600 * 0.66 + 0 * 0.01 = 3,300 ...