You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on how hard Ricky works, as follows.
ProbabilitiesProfits = ...$10,000 ...Profits =$50,000
Lazy .....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 hard working as a “personal cost” valued at $1,000. What fixed percentage of the profits should you offer Ricky? Assume Ricky only cares about his expected payment less any “personal cost”