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Suppose that you are a big corporation, and are thinking about who to contribute to for the upcoming presidential race. We will simplify the situation
Suppose that you are a big corporation, and are thinking about who to contribute to for the upcoming presidential race. We will simplify the situation so you have three options: Give to Democrats Give to Republicans Give to Both Your only interest in this situation is maximizing your expected profits, which are listed in the following table (in million dollars). We will assume that expected utility in this case equals expected profits. Give to Democrat Give to Republicans Give to Both Democrats Win $25 mill $0 $10 mill Republicans Win $5 mill $30 mill $15 mill (a) Suppose that it is equally likely that the Democrats win and the Republicans win. Calculate the expected utility from each of the possible strategies. Which should you adopt? (b) Of course people might have different estimates of the probabilities of election. Suppose then that we let the probability the Democrats win be p. Write out the expected utilities for each of the three possible strategies. (c) EXTRA CREDIT [3 points]: Mr. Politics says that your company should give to both parties, because you are covered either way: at the least your company will make 10 million dollars. Here is the
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