John has a von NeumannMorgenstern utility function given by U = M, where M is his income.

Question:

John has a von Neumann–Morgenstern utility function given by U = √M, where M is his income. If he becomes an economics professor, he will make M = 81/ yr with probability 1. If he becomes an attorney, he will make M = 900/yr if he becomes a partner in a Wall Street firm, but only M = 25/yr if he fails to make partner. The probability of his becoming a partner is 0.2. Smith is an infallible judge of legal talent. After a brief interview, he can state with certainty whether John will become a partner. What is the most John would be willing to pay for this information? (Set up the relevant equation. You don’t need to solve it.)

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: