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Your firm has been sued for $3 million by a supplier for breach of contract. Your lawyers believe that there are three possible outcomes if the suit goes to trial. One, which the lawyers term highly improbable, is that your supplier will win the lawsuit and be awarded $3 million. Another, which the lawyers term unlikely, is that your supplier will win the lawsuit and be awarded $500,000. The Third, which the lawyers them likely, is that your supplier will lose the lawsuit and be awarded $0. You have to decide whether to try to settle the case. To do so you need to assign probabilities to “highly improbable, “unlikely,” and “likely.” What probabilities correspond to these statements? Going to trial will cost you $100,000 in legal fees. One of your lawyers believes that your supplier will settle for $100,000 (and you will have legal fees of $25,000). Should you settle?
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