Choosing a number when the larger pays the smaller
Question
Alice's number is uniform on the integers . Bob, not knowing , chooses an integer in the same range. If the numbers differ, the holder of the larger one pays the holder of the smaller one an amount equal to the smaller number; equal numbers mean no payment. With Bob choosing optimally, what is his expected gain?
Short answer
. If Bob pays , averaging ; if he receives . So his expected gain is , a parabola peaking at . Both and give .
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Open the worked solutionLessons behind this question
- Expectation, Mean, and Variance
- Conditional Expectation and Variance Revisited
- Continuous Random Variables and Probability Density Functions
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