In 1986, a Texas jury awarded the Pennzoil Corporation $12 billion after deciding that Texaco had illegally interfered with Pennzoil's takeover of Getty Oil Company. The U.S. Supreme Court had agreed to hear an appeal in 1988. In 1987, Pennzoil offered Texaco a binding out-of-court settlement that required Texaco to make a payment to Pennzoil of $5 billion, and forgo any further court appeals to obtain the $12 billion ruling already made in favor of Pennzoil. Texaco refused this out-of-court settlement offer. Assume Texaco's options were only (1) to wait for the Supreme Court to rule on the case, or (2) to accept Pennzoil's $5 billion settlement. Assume further that if Texaco waits for the Supreme Court to act, the ruling will be either a reversal or an upholding of the earlier judgment.
• Describe Texaco's dilemma with a decision tree.
• What can we infer about Texaco's perceived probability of obtaining a Supreme Court ruling overturning the standing lower court ruling since it refused the out-ofcourt settlement offer from Pennzoil?