You wish to hire Ron to manage your Calgary operations.

The profi ts 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 views working hard as a “personal cost” valued at $1000. What fi xed percentage of the profi ts should you off er Ron? Assume Ron cares only about his expected payment less any “personal cost.”

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