Question:
- Suppose there are 2 firms, one firm provides a perfectly safe work environment and pays a wage of $20,000 per year. The second firm has a somewhat riskier work environment. In this case the worker has a 10% risk of getting injured and earning only 10,000 due to lost work time and a 90% chance of not being injured and receiving a wage of 25,000.
2a. Create a decision tree using the figure below to outline the possible outcomes. What is the expected payoff from the second job? Which job would you choose and why?
2b What types of problems arise in this type of simple wage risk study?
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