I am Gamblor March 3, 2008
Posted by Geordie in General.28 comments
While I was watching my old buddy Dan Henderson get beat up last Saturday I got into a beer- and scotch-fueled argument with my boxing coach (who also happens to be a criminal defense lawyer for people with names like Lucky who have institution mandated “halos of security” that you have to stay out of) about gambling. Here is the scenario. Two people. Person A is The Buyer and person B is The Bank.
The Buyer agrees to pay a certain sum (to be determined) to The Bank to play the following game.
The Bank tosses a fair coin until it comes up tails. The number of heads before the first tails comes up we define to be N.
If N=0 (the first coin toss comes up tails) The Bank pays The Buyer nothing. If N>0 The Bank pays The Buyer 2^(N-1) dollars.
For example if The Bank throws {heads, heads, heads, tails} then N=3 and The Buyer gets paid 2^(3-1)=4 dollars.
The argument was about what price The Bank should charge to The Buyer to play this game to ensure a “house edge”. What do you think?
