Penney's Game Odds From No-Arbitrage

Penney's game is a two-player zero-sum game in which each player chooses a three-flip pattern of heads and tails, and the winner is the player whose pattern occurs first in repeated tosses of a fair coin. Because the players choose sequentially, the second mover has the advantage. In fact, for any three-flip pattern, there is another three-flip pattern that is strictly more likely to occur first. This paper provides a novel no-arbitrage argument that generates the winning odds corresponding to any pair of distinct patterns. The resulting formula is equivalent to that generated by Conway's "leading number" algorithm. The accompanying betting-odds intuition adds insight into why Conway's algorithm works. The proof is simple and easy to generalize to games involving more than two outcomes, unequal probabilities, and competing patterns of various lengths. Additional results on the expected duration of Penney's game are presented.