To come up with a recursive scheme, one has to analyze what is changing from $n$ to $n+1$.
After writing down the first three rounds with bit strings of length $1$, $2$ and $3$ and observing what changes to the strings occur if one adds a $0$ or a $1$ it turns out that one can divide the words into three categories and assign counters:
- fine $F$, e.g. $00$, $\lvert F\rvert = B_n$
- flawed but recoverable $R$, e.g. $01$, $\lvert R \rvert = R_n$
- flawed and lost $L$, e.g. $10$, $\lvert L \rvert = L_n$
The following table shows what happens to the result if one adds a $0$ or a $1$ to words from these sets:
$$
\begin{array}{rcll}
F \cdot 0 & \to & F & \mbox{stays fine} \\
F \cdot 1 & \to & R & \mbox{gets flawed, but recoverable} \\
R \cdot 0 & \to & L & \mbox{gets lost forever} \\
R \cdot 1 & \to & F & \mbox{recovered!} \\
L \cdot 0 & \to & L & \mbox{stays lost} \\
L \cdot 1 & \to & L & \mbox{stays lost}
\end{array}
$$
This gives the following updates of the counts:
\begin{align}
B_{n+1} &= B_n + R_n \\
R_{n+1} &= B_n \\
L_{n+1} &= 2 L_n + R_n
\end{align}
Combining the second with the first we get a recurrence relation for $B_n$:
$$
B_{n+1} = B_n + B_{n-1}
$$
This is a well known recurrence relation, with explicit solutions for $B_n$.
So we can calculate $R_n = B_{n-1}$ and $L_n = 2^n - (B_n + R_n) = 2^n - B_{n+1}$.
From the paper examples we note that $B_1 = R_1 = 1$, $L_1 = 0$ and $B_2 = 2$, $R_2 = L_2 = 1$ and $B_3 = L_3 = 3$, $R_3 = 2$.