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Optimal threshold in a song-stopping bet

Question

A song lasts 234234 seconds. You name a number xx with 0<x<10<x<1; then the song is halted at a time chosen uniformly over its length. If it halts no later than 234x234x seconds in, you lose 2x2x units; if it halts after that, you win xx units. Which xx gives you the greatest expected profit?

Short answer

x=16x=\tfrac16. You lose 2x2x with probability xx and win xx with probability 1−x1-x, so your expected profit is x−3x2x-3x^2, a downward parabola. Its vertex is where 1−6x=01-6x=0, i.e. x=16x=\tfrac16, giving profit 112\tfrac1{12}.

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

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