Redraw or keep
Two players each receive an independent number, uniform on . Each, without any information about the other, may throw their number away once and take a fresh uniform number instead. The higher final number wins.
In the symmetric equilibrium, each player redraws exactly when their first number is below some threshold . Find .
Fractions, decimals with at least 3 significant digits, and expressions such as sqrt(2)/2, e^-1 or pi/4.
Suppose your opponent uses threshold . Find the distribution function of their final number.
At the threshold you must be indifferent: keeping the number wins exactly as often as redrawing.
h
s Shown after a correct answer. Revealing it first marks the problem as seen, not solved.
Idea. Against an opponent who uses threshold , keeping a number wins with probability , while redrawing wins with a fixed probability . You keep exactly when . In equilibrium the threshold where the two are equal must be itself.
Step 1: the opponent's final number. With probability they redraw and get a fresh uniform number; otherwise they keep a number that is uniform on . So for ,
Step 2: redrawing. A fresh uniform number wins with probability
Step 3: indifference at . Keeping exactly wins with probability . Setting : that is, .
Step 4. The root in is the golden ratio's reciprocal. Since is increasing, keeping is better exactly above , so the threshold rule is indeed a best reply.
Intuition. Without an opponent, to maximise your expected number, the threshold would be . Here only beating the opponent counts, and the opponent's final number is skewed upwards by their own redraws, so a middling number is worth less and you redraw more.