But there is one more chance that he would counter offer another reduced amount of 600,000 (probability of 0.5)
If john takes the case to court it may happen that court award him with damages of $1,500,000 (probability of 0.3) and may award $750,000 (probability of 0.5). There is also one more chance that he would not be given even a single penny (probability of 0.2).
Detailed analysis of the above situation suggest that according to the given probabilities of the all the situations option of offering john $400,000 would be beneficial because there are chances that he may accept this offer actual outflow may range from $0 to $1,500,000. But chances of both are very low. Event of high chances are payment of $750,000 (which is equal in outflow of 1st option) and payment of $600,000 (which is lower than the first option). Other results may be payment of $400,000 (again lower than first option) zero payment (most favorable event in this whole situation) and payment of $1,500,000 (most disastrous situation). Except this last situation all the other options are beneficial.
Although first option is safe and result in an outflow of $750,000 but there are no chances that allied would pay any other amount bigger than this. But option 2 is little risky as it can result in a payment of bigger amount of $1,500,000. But as result of all probabilities is also less than the amount of 1st option therefore it seems worthwhile