A risk-neutral plaintiff in a lawsuit is deciding whether to settle a claim or g

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A risk-neutral plaintiff in a lawsuit is deciding whether to settle a claim or go to trial. ... Your question has expired and been refunded. We were unable to find a Chegg Expert to answer your question. Question: A risk-neutral plaintiff in a lawsuit is deciding whether to settle a claim or go to trial. The d... A risk-neutral plaintiff in a lawsuit is deciding whether to settle a claim or go to trial. The defendants have offered a $91,000 settlement. a. If the plaintiff does not settle, she believes that the probability of winning at trial is 70%. If the plaintiff wins, she is awarded X dollars. If she loses her payoff is $0. How large must X be in order for the plaintiff to turn down the settlement offer? Suppose instead that the plaintiff is risk-averse, with a utility function of sqrt(X). If the plaintiff does not settle she believes that the probability of winning at trial is 70%. If she wins she is awarded X dollars. If she loses her payoff is $0. How large must X be in order for the plaintiff to turn down the settlement offer? Is this number smaller or larger than above)? Why?

Explanation / Answer

a) Payoff must be equal

0.7*x=91000

x=130000

b) 0.7* sqrt(x) = sqrt(91000)

x= 185714

THis number is larger than above because the plaintiff is risk averse

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