You play the following game:
Roll a fair 6-sided die as many times as you like.
You can continue to roll, winning $100 every time it's not a 6. You can also decide to quit at any time, having not yet rolled a 6, and keep all of your winnings.
What is the optimal number of rolls at which you should "call it quits"? i.e. For what number, n , should you decide ahead of time, "I'm gonna continue to roll until I've done n rolls (assuming I haven't lost all my money yet) and then I should quit."
Give your answer as the sum of all the numbers for which you maximize your expected value of the game. So, for example, if there are two such numbers for which you maximize your expected payoff, m and n , please give your answer as the sum m + n .
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We have the function E ( n ) = 1 0 0 $ ⋅ n ⋅ ( 6 5 ) n . There are 3 ways to find out when this function is maximized.
Way 1: Plug in the numbers 1,2,3,4... until you found the maxima
Way 2: Find the derivative E ′ ( n ) = ( 6 5 ) n ⋅ ( l n ( 6 5 ) + 1 ) and solve for E'(n)=0. This will yield a number between 5 and 6 which means you have to check if E(5) or E(6) is or if they are equal.
Way 3: From the function for E(n) we can find the recursive definition E ( n ) = E ( n − 1 ) ⋅ 6 5 ⋅ n − 1 n we then solve for 6 5 ⋅ n − 1 n = 1 because that's the value for n where E(n) is just about to decrease again. Solving will yield n = 6 which means that E ( 5 ) = E ( 6 ) are the maxima of the function E (for natural n).
In my opinion way 3 > way 2 > way 1.
Thanks for your insights, Aaa! (I used Way 3... ;) )
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In general, your expectation value for a strategy where you quit after rolling n times is given by:
E n = n × ( 6 5 ) n × $ 1 0 0
This is maximized for n = 5 and n = 6 .
5 + 6 = 1 1