Heads and Tails

Let’s play a coin-flipping game. At stake is half the money in my pocket. If the coin comes up heads, you pay me that amount; if it comes up tails, I pay you.

Initially this looks like a bad deal for me. If the coin is fair, then on average we should expect equal numbers of heads and tails, and I’ll lose money steadily. Suppose I start with $100. If we flip heads and then tails, my bankroll will rise to $150 but then drop to $75. If we flip tails and then heads, then it will drop to $50 and then rise to $75. Either way, I’ve lost a quarter of my money after the first two flips.

Strangely, though, the game is fair: In the long run my winnings will exactly offset my losses. How can this be?

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