You wish to hire Ron to manage your Dallas operations.

The profits from the operations depend partially on how hard Ron works, as follows.

If Ron is lazy, he will surf the Internet all day, and he views this as a zero-cost opportunity. However, Ron views working hard as a “personal cost” valued at $2,000. What fixed percentage of the profits should you offer Ron? Assume Ron cares only about his expected payment less any “personal cost.”

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Profit Probabilities Profit $20,000 Profit = $40,000 Lazy worker 70% Hard worker 30% 30% 70%