A country now has 10 units of capital. Each year, it may consume any amount of the available capital and invest the rest. Invested capital has a 50% chance of doubling and a 50% chance of losing half its value. For example, if the country invests 6 units of capital, there is a 50% chance that the 6 units will turn into 12 capital units and a 50% chance that the invested capital will turn into 3 units. What strategy should be used to maximize total expected consumption over a four-year period?
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