medium   Probability

Picky Casino

A release-checked medium problem for training Conditional Expectation, Expected Value, Games.

Question

A dealer at a casino holds a game that is played as follows: The player first pays $\$d$ to the dealer, where $d$ is some positive integer less than $100.$ The dealer then intends to flip a coin $d$ times. If at any point two consecutive heads are flipped, then the dealer stops flipping the coin, and the player wins and is awarded $\$100.$ Otherwise, the player loses (and is awarded nothing). A player pays the dealer $\$29.$ The dealer weights the coin before flipping it, changing the probability of flipping heads such that the player's expected net profit is non-positive. The player is not aware of this re-weighing. Find the maximum probability that the dealer should choose.

Practice focus

This Probability problem is tagged Conditional Expectation, Expected Value, Games. State the random variables and conditioning information explicitly, then check the result against boundary cases before opening hints or a solution.

Explore related collections

Reviewed questions in this area

easyBaby BoyReviewed

Probability · SIG, DE Shaw

easyBad BagelReviewed

Probability · SIG, Jane Street