How do you think Liedtke (Problem 14.14) and the directors in Problem 14.15 will be able to reconcile their differences?
Problem 14.15
Of course, Liedtke is not operating by himself in the Texaco-Pennzoil case; he must report to a board of directors. Table 14.6 gives utility functions for three different directors. Draw graphs of these. How would you classify each director in terms of his or her attitude toward risk? What would be the strategies of each? (That is, what would each one do with respect to Texaco’s current offer, and how would each react to a Texaco counteroffer of $3 billion? To answer this question, you must solve the decision tree — calculate EUs — for each director.)
Table 14.6