Coin Flips, Rational Decisions and Risk: Support for OECD Draft Guidance on Chapter 1

Thu Feb 19 15:47:47 EST 2015
By Patrick Breslin

In this article from Bloomberg BNA's Tax Management Transfer Pricing Report, NERA Vice President Patrick Breslin uses a game model involving four coin flips to show how the payoff for participants taking risk increases with the certainty of favorable outcomes. The model offers support for a recent OECD discussion draft on identifying risk in commercial transactions by highlighting how the rational decisions made in arm's-length transactions involving investments in hard-to-value intangibles contrast with decisions sometimes made by related parties in comparable circumstances.