4 Jay Boyville Corporation is being sued by Lark Dent.

Lark can settle out of court and win $40,000, or go to court.

If Lark goes to court, there is a 30% chance that she will win the case. If she wins, a small and a large settlement are equally likely (a small settlement nets $50,000, and a large settlement nets $300,000).

a If Lark is risk-neutral, what should she do? What should Lark do if her utility function for an increase x in her cash position is given by u(x)  x1/2?

b For $10,000, Lark can hire a consultant who will predict who will win the trial. The consultant is correct 90% of the time. Should she hire the consultant? (Assume Lark is risk-neutral.) What is EVSI?

c If Lark is risk-neutral, what is EVPI?