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?

Quote:

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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?

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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

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.

I can't help but wonder why a republican winning would be better for "solar" over "oil" and vice-versa for a democrat!