I've been reading a book on Statistics and I could COMPLETELY understand all of its text. It basically explained the bayes theorem and what priors were, what posteriors were etc. But then in the exercise I came across this problem:
There are 3 possible values for µ. It could be fair µ =1/2, biased tails µ =1/4, or biased heads µ =3/4.
Assume our prior is that each of these possibilities is equally likely. Looking forward, what is the minimum number of tosses we’d need to see in order to conclude that p(µ =1/2) >1/2 (strictly greater)? Give an example of a sequence of tosses with this length which would lead to this conclusion. Prove your results.
And I have no clue at all how to approach this.
In addition, what is the minimum number of tosses we’d need to see in order to conclude that p(µ =3/4) >1/2 (strictly greater)? Give an example of a sequence of tosses with this length which would lead to this conclusion. Prove your results.
The probability of getting $k$ heads and $l$ tails given $\mu$ is
$$ \binom{k+l}k\mu^k(1-\mu)^l\;. $$
Thus the probability for $\mu=\frac12$ given $k$ heads and $l$ tails is
$$ \frac{\left(\frac12\right)^k\left(\frac12\right)^l}{\left(\frac14\right)^k\left(\frac34\right)^l+\left(\frac12\right)^k\left(\frac12\right)^l+\left(\frac34\right)^k\left(\frac14\right)^l}\;. $$
Given $k+l$, this is maximal when $\left(\frac14\right)^k\left(\frac34\right)^l+\left(\frac34\right)^k\left(\frac14\right)^l$ is minimal, and thus when $3^l+3^k$ is minimal, and this happens when $k$ and $l$ are as equal as possible, as one would expect. Thus for given $n=k+l$, the maximal probability for $\mu=\frac12$ is
$$ \frac{\left(\frac12\right)^n}{3^{\lceil n/2\rceil}\left(\frac14\right)^n+\left(\frac12\right)^n+3^{\lfloor n/2\rfloor}\left(\frac14\right)^n}=\frac1{1+2^{-n}\left(3^{\lceil n/2\rceil}+3^{\lfloor n/2\rfloor}\right)}\;. $$
The value for $n=2m+1$ is the same as for $n=2m$, so we only have to consider $n=2m$, which yields
$$ \frac1{1+2^{1-2m}3^m}=\frac1{1+2\left(\frac34\right)^m}\stackrel!\gt\frac12\;, $$
and thus $1+2\left(\dfrac34\right)^m\lt2$, that is $2\left(\dfrac34\right)^m\lt1$, and thus $m\gt\dfrac{\log\frac12}{\log\frac34}\approx2.4$.
Thus you need at least $6$ tosses, and one sequence of results that would suffice is three heads, three tails (in any order), leading to a probability of $32/59\approx0.54$ for $\mu=\frac12$.