|
|
|
|
|
|
by PaulHoule
1585 days ago
|
|
|
Actually https://en.wikipedia.org/wiki/Kelly_criterion "The Kelly bet size is found by maximizing the expected value of the logarithm of wealth, which is equivalent to maximizing the expected geometric growth rate" In real life people often choose to make bets smaller than the Kelley bet. Part of that is that even if you have a good model there are still "unknown unknowns" that will make your model wrong some of the time. Also most people aren't comfortable with the sharp ups and downs and probability of ruin you have with Kelley. |
|
|
1) The Kelly criterion is a general decision rule not limited to bet sizing. Bet sizing is just a special case where you're choosing between actions that correspond to different bet sizes. The Kelly criterion works very well also for other actions, like whether to pursue project A or B, whether to get insurance or not, and indeed whether to sleep under a tree or on a rock.
2) The Kelly criterion is not limited to what people would ordinarily think of as "wealth". It applies just as well to anything you can measure with some sort of utility where compounding makes sense.
The best overview I've found so far is The Kelly Capital Growth Investment Criterion[1], which unfortunately is a thick collection of peer-reviewed science, so it's very detailed and heavy on the maths, too.
[1]: https://www.amazon.com/KELLY-CAPITAL-GROWTH-INVESTMENT-CRITE...