vpFREE2 Forums

Why you should care about the Kelly criterion

I believe that being cheated should rank ahead of either of the below listed two options as “the most common”.

In a message dated 4/6/2014 12:10:17 P.M. Pacific Daylight Time, nightoftheiguana2…@…com writes:

···

There are many ways to lose at gambling, but probably these two are the most common:

  1. Gamble on negative expectation (negative EV)

  2. Gamble on positive expectation (positive EV) but bet more than double Kelly

Everybody knows about #2, it is commonly called betting over your head or overbetting your bankroll, but not everyone knows there is a mathematical definition (Kelly) for the concept, and many are actually overbetting Kelly thinking they are not “over their head” when in fact they are from a mathematical standpoint.