Value of guessing a number that pays itself
Question
I secretly choose an integer between and . You get one guess, and if you guess correctly I pay you ; otherwise you get nothing. Both of us play optimally. How much is this game worth to you?
Short answer
, where . I choose with probability proportional to , so every guess earns you . You guess with the same weights, making each of my choices cost me the same amount, so neither can do better.
Adapted from Joshi, Denson & Downes, Quant Job Interview Questions and Answers, Q3.4, p.81; question and answer rewritten by SelfMadeQuant.com.
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Open the worked solutionLessons behind this question
- Sample Spaces, Events, and the Probability Axioms
- Conditional Probability, Total Probability, and Bayes' Rule
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