An agent (he) is paid $64 if a project succeeds, $16 if it fails. The project is successful with probability if he works hard (e=1), and with probability if he doesn't (e = 0). (With the remaining probabilities, the project is unsuccessful). He has a utility function () = over money, and exerting effort "costs" him 3 units of utility (For example, his net utility of exerting effort (e = 1) is the expected utility of the money he will make through the project minus 3; the disutility of exerting effort). He also has an outside option (an alternative job offer) that gives him a utility level of 4 units of utility (For example, an alternative employments pays him $16 without requiring him to exert any effort.)