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Return-to-variance gap in a two-marble sibling game

Question

Alice and Bob each hold one red and one blue marble, and each reveals one of theirs chosen uniformly at random. Two blues pay Alice $1, two reds pay Alice $3, and mismatched colours pay Bob $2; all money comes from a third party, so nobody pays anything. Let ArA_r and BrB_r be expected payoff divided by payoff variance for Alice and Bob respectively. Compute Br−ArB_r-A_r.

Short answer

1/31/3. Alice gets 11, 33, 00 with probabilities 14,14,12\tfrac14,\tfrac14,\tfrac12: mean 11, variance 32\tfrac32, so Ar=23A_r=\tfrac23. Bob gets 22 or 00 with probability 12\tfrac12 each: mean 11, variance 11, so Br=1B_r=1. Same expected payoff, but Alice bears more risk.

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

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