Question Completion Status: QUESTION 8 12.5 po John Smith wants to start a business, and he therefore asks investors for money. When he receives the money, he can either use it in the business or embezzle it (use it for his own purposes). The business may succeed, with probability 2/3, or it may fail, with probability 1/3. If it fails, the investors receive a payoff of -100, no matter whether funds were embezzled or not. (We can express this payoff as -100.) A success will yield 500 if Smith is honest and +100 if he is dishonest. Assume that J. Smith will eam 100 more if he embezzles than if he is honest no matter what the outcome is. Suppose that the investors specify the following terms in their contract with Smith: "We will pay you 20 if the outcome is a payoff of +500 or -100, but we will sue you for 10,000 if the outcome is a payoff of +100." Why does the contract pay more for an outcome of -100 than an outcome of +1007 If investors catn 150, the can infer that funds have been embezzled and decide to punish John Smith. An outcome of +100 indicates embezzlement with p=1 but the investors do not punish John Smith 1 John Smith makes the investors cam 200, they are happy to pay him more: An outcome of +100 indicates embezzlement with p-1 and the investors punish John 12.5 points QUESTION 9 Save All Amuwer Close Window Click Save and Submit to see and submit. Click Save All Answers to save all amsters. 2 S 22