You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on how hard Ricky works, as follows.
|
Probabilities |
||
|
|
Profit = $10,000 |
Profit =$50,000 |
|
Lazy |
60% |
40% |
|
Hard worker |
20% |
80% |
If Ricky is lazy, he will surf the Internet all day, and he views this as a zero cost opportunity. However, Ricky would view working hard as a personal cost” valued at $1,000. What fixed percentage of the profits should you offer Ricky? Assume Ricky only cares about his expected payment less any personal cost.”