Lower Risk,Higher Returns

On your trip to New Delhi you come across two vendors which are selling shirts. Equal in size, in color, in quality and both are worth 100 rupees. So you know that you can sell the shirt to someone else at 100 rupees. Since it's off season, vendor A sells it at rupees 45 and vendor B sells the same shirts at rupees 60.

Which is more riskier - buying the shirt from A at 45 rupees or B at 60 rupees?

90% of all people I have asked this question have said "60 rupees". Think again. It's better to shell out 45 rupees for a 100 rupee shirt or 60 rupees for a 100 rupee shirt. A value investor (and most people) would be more comfortable paying 45 rupees than paying a higher sum of 60 rupees.

But where are the returns higher?

a) When you buy the shirt from A - Risk = 45 rupees; Return = 55 rupees
b) When you buy the shirt from B - Risk = 60 rupees; Return = 40 rupees

lower the risk, higher the return (and vice-versa)