I don't understand. On average, for every 4 input bits we will get it right 3 times writing 0.5 bits each time and get it wrong once writing 2.4 bits once. So we write a total of 3 * 0.5 + 2.4 bits = 3.9 bits. The compressed output is 3.9/4 = 97.5% as big as the input. Not very compelling. What am I misunderstanding?

I back of the enveloped it wrong is what :(.

It's -log2(0.75) for getting a 75% chance right and -log2(0.25) for getting it wrong. I should have stated .4 bits and 2bits respectively not 0.5 and 2.4. Sorry! Good catch.

It's 3.2 vs 4bits. Now that may not seem huge but the probabilities tend to be at the more extreme ends if the predictor is any good. Once you start going towards the 99% range you get extreme efficiency.