Use a decision tree to illustrate how a risk-neutral plaintiff in a lawsuit decides whether to settle
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Use a decision tree to illustrate how a risk-neutral plaintiff in a lawsuit decides whether to settle a claim or go to trial. The defendants offer \(€ 60,000\) to settle. If the plaintiff does not settle, she believes that the probability of winning at trial is \(70 \%\). If the plaintiff wins, the amount awarded is \(V\). How large can \(V\) be before the plaintiff refuses to settle? If the plaintiff was risk averse, would the result change?
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