Between the two, which approach provides a better ROI and is the smarter tactic for organizational success, employee retention or attraction?

Even though I will always support option 1, retaining and believe the following approach to be an extremally poor cultural decision (even immoral). I remember reading a published study that demonstrated it is cheaper for a enterprise business to give limited raises and limited resources to promoting and retaining whilst giving higher salaries for attraction. However it went on datasets from an older mindset of working for 1 company for years to decades. With the new mindset/market from millennial age employees onwards this kind of exploitive behavior is not tolerated and you'll find your best employees leaving
So I believe option 1 is the superior

it's clearly cheaper to retain those you already have (and like) then to start anew or from scratch