Question: John has a von Neumann-Morgenstern utility function given by = where M is his income. If he becomes an economics professor, he will make M

John has a von Neumann-Morgenstern utility function given by = 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. The Oracle Smith is an infallible judge of legal talent (and he is the only one in the world). After a brief interview, he can state with certainty whether John will become a partner.

a) If Smith demands 17/year (for life) in exchange for the info, will John be willing to pay?

b) What about 32/year?

c) What is the most John would be willing to pay for this information?

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