Joe wants to achieve the highest position possible with the XYZ Co During the interview, he tells them he is capable of performing many difficult tasks. The company feels there is a 10% chance he is lying
Given the payoff matrix in the above figure, what job level will the company offer to Joe? Why?
The expected payoff to the firm of giving Joe a demanding job is (0.9 ? 2 ) + (0.1 ? 1 ) = 1.9. The expected payoff to the firm of giving Joe an undemanding job is (0.9 ? 1 ) + (0.1 ? 4 ) = 1.3. The firm's expected payoff is greater if Joe has a demanding job. Even though Joe's interests diverge from the company's and he has the incentive to claim high ability regardless of whether it is true, the firm feels there is a very high probability that Joe does have high ability and therefore offers a demanding job.
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