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Explain to me how you settle on 1/2?
If you awaken her under the format of the experiment and ask her to pick heads or tails with a $1 prize for the correct answer, what is her EV for a heads pick or a tails pick?
That is easy to answer if you consider multiple runs. After 1000 experiments she will be awakened 1500 times, with 500 heads and 1000 tails on average. Thus the total award is $500 if she guessed only heads and $1000 for only tails. Her EV is $0.33 for heads and $0.67 for tails.
Since EV is (prob. of event) x (profit from the event), the probability must be 1/3 head and 2/3 tails.
I truly cannot understand how you can see this very simple argument and say 1/2. Please explain that to me. Show me where the error in this is.
There is no error in the EV calc, but the answer is still 1/2.
Under normal situations placing bets and expected value are directly related. In this situation it isn't : the odds are still as stated (1/2) except placing a bet is circular. You only win the bet (the EV shows 2:1 for tails) because you get to bet twice when right. But the actual odds are different.
I will give you the study I did that finally convinced me: Lets say that there is a big red button in the center of the table. It can only be pressed once. If she presses it and hasnt pressed it before, she gets $1 if it is tails, loses $1 if it is heads. If she presses it and has pressed it before, (or if she never presses it,) nothing happens. You might think of this button as an indicator of whether tails is a favorite*. If tails was really 2/3, she would press this button every time, since her EV would then be $0.333..., right?
You can compute from simple algebra (I've omitted the details) that her optimal strategy is to press the button 1/2 of the time. The reason is basically she is trying to maximize the number of times she presses the button when it is not monday. And her EV under the optimal strategy is $0.125. Maybe this can help bring light on the idea that any betting in this situation is not indicative of the probability, but rather just a trick around being able to bet multiple times.
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(*its not, but under your line of thinking, it would be)