Your code won't work because you haven't assigned anything to n before you first use it. Try this:
def oracle():
n = None
while n != 'Correct':
# etc...
A more readable approach is to move the test until later and use a break:
def oracle():
guess = 50
while True:
print 'Current number = {0}'.format(guess)
n = raw_input("lower, higher or stop?: ")
if n == 'stop':
break
# etc...
Also input in Python 2.x reads a line of input and then evaluates it. You want to use raw_input.
Note: In Python 3.x, raw_input has been renamed to input and the old input method no longer exists.