Jo Thomkins must decide whether or not to proceed with a particular investment project. If the project succeeds, Jo will gain $15 million. If the project fails, she will lose $3 million. Jo estimates that there is a 20% chance that the project will succeed and an 80% chance that it will fail.
A consultant could tell Jo with certainty if the project will succeed or fail, but only for a fee. What is the most that Jo should be willing to pay the consultant for the information? Explain. Assume that Jo has correctly estimated the probabilities of the project’s likely success and failure.
Dear Student, According to your solution it is not correct to assume that the forecast will be... View the full answer