Your client, the Washington Unicorns, is in negotiation with Jordy Michaels for the contract that will cover the final season of his amazing basketball career. Michaels was reasonably healthy last season, but he has been recently troubled by back problems. At best, it seems, he can play another year. In the summer, before the official season begins, he will be in one of three situations (which he is in will be known to him but not to us:

1. He will be reasonably healthy and able to play unimpeded. This is 50% likely. If he is in reasonably good health, continuing to play even for free would be worthwhile for him because he loves the attention of fans and the media.

2. He will be moderately disabled, in which case it will be possible for him to play, but he would have to play in significant pain. This is 25% likely. Playing in pain is no fun, but he would be willing to do so if he gained at least $2 million thereby.

3. He will be permanently disabled and unable to play. This is 25% likely.

From the Unicorns perspective, having Michaels play one more year is worth $20 million in additional ticket and advertising profits. Your client is considering two contract offers:

FOR SURE: pay Michaels $6 million, whether or not he plays.

CONTINGENT: pay Michaels $10 million, but only if he plays.

Advise the Unicorns on which contract they should offer Michaels using a decision tree diagram.

Answer rating: 100% (QA)

To advise the Unicorns on which contract they should offer Michaels we can use a decision tree diagr... View the full answer