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You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on how hard Ricky works, as follows: Probabilities
You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend
partially on how hard Ricky works, as follows:
| Probabilities | |
| Profit = $10,000 | Profit = $50,000 |
Lazy Worker | 60% | 40% |
Hard Worker | 20% | 80% |
If Ricky is lazy, he will surf the Internet all day, and he views this as a zero cost opportunity.
However, Ricky would view working hard as a personal cost valued at $1,000. What fixedpercentage
of the profits should you offer Ricky? Assume Ricky only cares about his expected
payment less any personal cost.
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