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Author Question: Joe wants to achieve the highest position possible with the XYZ Co. During the interview, he tells ... (Read 323 times)

tatyanajohnson

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on: Jun 18, 2019


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 20% chance he is lying. Given the payoff matrix in the above figure, what job level will the company offer to Joe? Will he accept this offer?
◦ Firm offers a demanding job and Joe refuses the offer.
◦ Firm offers an undemanding job and Joe refuses the offer.
◦ Firm offers an undemanding job and Joe accepts the offer.
◦ Firm offers a demanding job and Joe accepts the offer.
Microeconomics ¦ Perloff ¦ 8th Edition
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chreslie

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Reply #1 on: Jun 18, 2019
Firm offers a demanding job and Joe accepts the offer.


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rachel9

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Reply #2 on: Jun 18, 2019


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?


millet

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Reply #3 on: Jun 18, 2019
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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