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Problem 5 (due Monday, April 8)
An investor in a casino is offered a choice of getting a return each time a certain game is played. The game is played by tossing N times a fair coin and recording the sequence of heads (H) and tails (T). Let h be the number of appearances of HH in the recorded sequence and let t be the number of appearances of HT. For example, when N=5 and THHHT is recorded then h=2 and t=1. The investor can choose to either get h cents each time the game is played, or to get t cents each time the game is played. Which choice offers a better expected return?
No solutions were submitted. The expected returns for each choice are actually the same and equal to (N−1)/4. For a detailed solution see the following link Solution.