Stopping on three consecutive face-down cards
Question
Three face-down cards carry the values , and in random order, where is unknown to you. You turn them over one at a time. After seeing the first card you may stop and be paid its value, or continue; after the second you may stop and take the second card's value, or else you must take the third card's value. Under an optimal strategy the expected payout is . Find .
Short answer
. Shift so the cards are . Stopping at the first card gives on average, so look at the second card: if it exceeds the first, keep it; otherwise take the third. Over the six equally likely orders this pays for a mean of , and checking every rule based on the observed difference shows nothing does better.
Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.
See the hint and the full worked solution in the question bank (free account).
Open the worked solutionLessons behind this question
- Expectation, Mean, and Variance
- Counting and Combinatorics
- Conditional Expectation and Variance Revisited
Start with a free lesson: Expectation, Variance and Covariance is part of a free topic. Create a free account, no card needed, to read it in full with worked solutions.
Read it free