Suppose an executive has a choice between two salary compensation packages. One guarantees him an income of $250,000 a year

The other would give allow him to earn an extra $50,000 a year if profits rise by 2% but receive a pay cut of $50,000 f they don't. Let's assume that there is a 50% chance that the profits could rise by 2% or more and a 50% chance that they won't. Explain why he might accept the $250,000 guaranteed salary. What would have to be true for him to accept the second salary compensation package?

Workers, like consumers, make choices not to maximize income per se but to maximize their utility levels. If the law of diminishing marginal utility holds as economists expect then the extra-added utility that he would receive from the $50,000 increase in income might be less than the expected utility that he would enjoy if he lost the $50,000 . What would have to be true for him to accept the second salary compensation method is if the utility lost was less than the utility gained.