Use the fact that the expected value of an event is a probability weighted average, or the sum of each probable outcome multiplied by the probability of the event occurring.

You wish to hire Ron to manage your Alberta operations. The profits from the operations depend partially on how hard Ron works, as follows.

If Ron is lazy, he will surf the Internet all day, and he views this as a zero-cost opportunity. However, Ron would view working hard as a €œpersonal cost€ valued at $1000. What fixed percentage of the profits should you offer Ron? Assume Ron only cares about his expected payment less any €œpersonal cost.€

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Probabilities Profit = $10 000 Profit = $50 000 40% Lazy 60% Hard worker 20% 80%