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What is the most john willing to pay

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Reference no: EM132414852

Jhon has a von Neumann- Morgenstern utility function U = M**1/2(square root of M) where M is his income. If he becomes an economics professor, he will make M=81/year with probability 1. If he becomes an attorney, he will make M=900/year if he becomes a partner of Wall Street firm, but only 25/year if he fails to make partner. The probability of his become a partner is 0.2. Smith is an infallible judge of legal talent. After a interview, he can state certainty whether Jhon will become a partner. What is the most John willing to pay for this information? (Set up the relevant equation, you do not need to solve it completely.)

Reference no: EM132414852

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