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When presenting a theoretical argument of the choices of individual actors, we should first specify their potential goals. When aiming to explain parliamentary speechmaking, we should thus specify the likely incentives of MPs and party leaders. We here follow a classical approach taken in the previous literature, assuming that MPs ‘are strategic actors concerned with policy-making, career advancement, and re-election’ (Kam 2009, p. 17). Or, as described in the literature on political parties, political actors are assumed to be policy-, office- and vote-seeking (see, e.g., Muller and Strom 1999).

Let us consider the case of an investment fund that has to evaluate different investment alternatives. The fund has to invest 250 million euros into investment projects with lifetimes shorter than 25 years, with a target internal rate of return of x%. Let us assume that every investment alternative under evaluation is infinitely divisible since the fund can always decide how much of any single investment to subscribe. In any case, let us assume that all the available capital has to be invested among three alternatives. Optimal proportion of the available capital should then be determined.

The well-known mean-variance model, see Markowitz (1952), despite its popularity and simplicity, is not able to capture the stylized facts of asset returns such as asymmetry and fat tails, which have an impact on portfolio selection, particularly when hedge funds are included.

Say you have $1,000 to invest in the equities market. Your favourite stockm is Blue Sky Ventures (BSV), which you believe will return about 18 per cent next year. In the past it has been quite volatile, at about 30 per cent. You buy $1000 of BSV and you expect to earn 18 per cent plus or minus around 30 per cent.