References: Milton Friedman suggesting problem to Wald and the math in sequential analysis.
In order to understand the story, it is necessary to have an idea of a simple statistical problem, and of the standard procedure for dealing with it. The actual problem out of which sequential analysis grew will serve. The Navy has two alternative designs (say A and B) for a projectile. It wants to determine which is superior. To do so it undertakes a series of paired firings. On each round, it assigns the value 1 or 0 to A accordingly as its performance is superior or inferior to that of B and conversely 0 or 1 to B. The Navy asks the statistician how to conduct the test and how to analyze the results.
The standard statistical answer was to specify a number of firings (say 1,000) and a pair of percentages (e.g., 53% and 47%) and tell the client that if A receives a 1 in more than 53% of the firings, it can be regarded as superior; if it receives a 1 in fewer than 47%, B can be regarded as superior; if the percentage is between 47% and 53%, neither can be so regarded.
When Allen Wallis was discussing such a problem with (Navy) Captain Garret L. Schyler, the captain objected that such a test, to quote from Allen’s account, may prove wasteful. If a wise and seasoned ordnance officer like Schyler were on the premises, he would see after the first few thousand or even few hundred [rounds] that the experiment need not be completed either because the new method is obviously inferior or because it is obviously superior beyond what was hoped for.