# Payoff Matrix

• Jan 7th 2012, 09:10 AM
fcabanski
Payoff Matrix
You inherit 10K prior to a presidential election and wish to invest it in solar energy and oil stock. An investment advisor provides you with a payoff matrix that indicates your probable 4-year gains depending on which party comes into office. How should you invest so you have the largest gains irrespective of how the election turns out?

--------Rep DEM
Solar 5000 1000
Oil 4000 6000

Invest how much in solar?

Invest how much in oil?
• Jan 8th 2012, 12:47 AM
CaptainBlack
Re: Payoff Matrix
Quote:

Originally Posted by fcabanski
You inherit 10K prior to a presidential election and wish to invest it in solar energy and oil stock. An investment advisor provides you with a payoff matrix that indicates your probable 4-year gains depending on which party comes into office. How should you invest so you have the largest gains irrespective of how the election turns out?

--------Rep DEM
Solar 5000 1000
Oil 4000 6000

Invest how much in solar?

Invest how much in oil?

Well, if you invest x in oil and the rest in solar what are the gains for the two election outcomes?

Then the solution is the value of x which gives the same return whatever the election outcome.

CB
• May 30th 2012, 11:00 AM
bob000
Re: Payoff Matrix
5x+4(1-x)=x+6(1-x)
x+4=6-5x
x=1/3
Invest 1/3 in solar and 2/3 in oil. You now no longer care who wins.
• May 30th 2012, 11:51 AM
HallsofIvy
Re: Payoff Matrix
I can't help but wonder why a republican winning would be better for "solar" over "oil" and vice-versa for a democrat!