Personally, I vote for a cooperative, buffed-up battle. I see no reason to retreat; instead, there are many reasons to stay:
1. This is likely the final boss, and he needs to be defeated.
2. Inaction will not change anything. If we leave, the Society of Mages will bring another group of mercenaries.
3. Just for fun!
But first, we need to get Naadash and Funnel and have another discussion with them.
Added after 45 seconds
I don't think the world will end. At worst, all sorts of weird things will start happening in this region.

