<story><title>Kelly Criterion – how to calculate optimal bet sizes</title><url>https://fhur.github.io/notes/articles/the-kelly-criterion/index.html</url></story><parent_chain></parent_chain><comment><author>YossarianFrPrez</author><text>It&amp;#x27;s well worth implementing and testing out the Kelly Criterion. It&amp;#x27;s super simple to code up in a Jupyter Notebook so that you get to enter an amount to bet each time. When I tried it, I found my own psychology changing as the bets continued, even when I knew the coin&amp;#x27;s bias. It&amp;#x27;s a really great demonstration of the difference between a) intellectually knowing the optimal strategy, and b) what actually happens.&lt;p&gt;A bet on a biased coin paradigm was actually tried in the real world with finance professionals, with a cap on the maximum payout. The results are described here: &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;arxiv.org&amp;#x2F;pdf&amp;#x2F;1701.01427.pdf&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;arxiv.org&amp;#x2F;pdf&amp;#x2F;1701.01427.pdf&lt;/a&gt;
It&amp;#x27;s pretty interesting. (Note though that the &amp;quot;average returns&amp;quot; reported hide a lot of variation.)</text></comment>
<story><title>Kelly Criterion – how to calculate optimal bet sizes</title><url>https://fhur.github.io/notes/articles/the-kelly-criterion/index.html</url></story><parent_chain></parent_chain><comment><author>zucker42</author><text>I wonder how professional gamblers approach bet sizing. It seems to me that for most applications the Kelly Criterion is not the right choice. The utility of money is asymmetric; gaining $25000 is worse than not losing $25000. Relatedly, most actual gamblers want to ensure good returns while not going broke, so minimizing risk of ruin is often more important than maximizing return rate. Further complicating the matter is that in real life you don&amp;#x27;t know your actual probability of success, but you may have an estimation. And finally, though this is less commonly significant, your rate of return in a given game might depend on your the amount you bet.&lt;p&gt;From what I&amp;#x27;ve seen in the poker community, no one has really approached this type of bet sizing from a rigorous perspective beyond the relatively simple Kelly Criterion.</text></comment>