The owner of the Jets is going to offer a contract to a free agent player, Hapoleon. If signed, Hapoleon can give the Jets high effort or low effort. High effort costs Hapoleon $2 million and low effort costs Hapoleon nothing. The Jets' owner cannot observe Hapoleon's effort directly. Hapoleon has a guaranteed offer of $10 million from another team, the Sharks. If Hapoleon signs with the Jets, the team can be profitable or not and the Jets' owner can observe that. If Hapoleon gives high effort, then the probability the Jets are profitable is 80 percent, but if Hapoleon gives low effort, then the probability the Jets are profitable is 40 percent. Hapoleon is the typical risk neutral player and his utility is given by u(w) = w .

For this question, what would be the value of wage.

Calculate Hapoleon's expected payoff if he signs with the Jets and gives high effort.

Calculate Hapoleon's expected payoff if he signs with the Jets and gives low effort.

for high effort equation should be

E(u|h) = phu(wH) + (1 ph)u(wL) dh

for low

E(u|l) = plu(wH) + (1 pl)u(wL) dl.

ph = probability of high effort, pl is for low effort probability, wh for high effort wage and wl for low effort wage.

I'm not sure about the value of wH and wL which is wage and don't know about dh or dl

for high effort I get 0.8(10) + (1-0.8)(0) - 2 = 6

low should be 0.4(10) + (1-0.4)(0) - 0 = 4

am I doing this right?