The Agent’s payoff (or “utility”) is the difference between the wage received and the cost of the action taken: U = w – c(a). In this note (and throughout this course), we will focus on the simple case in which the Agent is risk-neutral—that is, the Agent simply wants to maximize the expected payoff E(w) - c(a). (Since ε is the only uncertainty in the model and does not affect the Agent’s cost function, no expectation is necessary in the second term of the Agent’s payoff.)