Shubham Singh

Suppose you and I are playing a game, and it could be any game. We have bet 10 dollars which would go to the winner. At some point, I offer to double the bet to 20 dollars. If you accept, the game continues with the new bet. If you refuse, you lose the game, along with the original ten dollars. What is the minimum probability of winning the game that you would need to accept the increased bet?

Answer:

Initially, our pool has $10 from each player, so that's $20 in the pool. Our opponent adds another $10, making the pool available to win $30.

If we play, we can win $30 in the pool, making our total money $40, or lose an additional $10 we just put in. So, we just need to win with a \( \frac{10}{40} \) probability to play the increased bet.

One more way to think about this problem is: to play the increased bet, the gain/loss should be less than the gain/loss of not playing the game.

We start the game by putting in $10. If we don't play again, we lose $10 with 100% probability. On the other side, i.e., playing the increased bet, we need our loss to be less than $10, so if the probability of winning is \(x\), we need:

$$20x + (-20)(1-x) \geq -10$$

$$40x - 20 \geq -10$$

$$40x \geq 10$$

$$x \geq \frac{1}{4} \text{ or } 25\%$$

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