John has a von Neumann–Morgenstern utility function given by U = √M, where M is his income. If he becomes an economics professor, he will make M = 81/ yr with probability 1. If he becomes an attorney, he will make M = 900/yr if he becomes a partner in a Wall Street firm, but only M = 25/yr if he fails to make partner. The probability of his becoming a partner is 0.2. Smith is an infallible judge of legal talent. After a brief interview, he can state with certainty whether John will become a partner. What is the most John would be willing to pay for this information? (Set up the relevant equation. You don’t need to solve it.)
Answer to relevant QuestionsIn the preceding problem, assuming that the interview is costless for Smith to conduct, is he getting the highest possible expected income for himself by charging John the same fee regardless of the outcome of the interview?A fair coin is flipped twice and the following payoffs are assigned to each of the four possible outcomes: H - H: win 20; H - T: win 9; T - H: lose 7; T - T: lose 16. What is the expected value of this gamble?Earthly Bliss dating service charges $100 per date that it arranges. All of its dates will accept an offer of marriage. In your estimation the quality of the potential spouses offered by the dating service can be measured by ...Sears, Roebuck and Co. has hired you as a consultant to give it marketing ad-vice about how to sell its new all-terrain vehicle. On the basis of the material covered in this chapter, suggest two specific marketing strategies ...In the fall, Crusoe puts 50 coconuts from his harvest into a cave just before a family of bears goes in to hibernate. As a result, he is unable to get the coco-nuts out before the bears emerge the following spring. Coconuts ...
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