
Kelly Criterion in detail - dedalus
http://www.elem.com/~btilly/kelly-criterion/
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chollida1
I have a feeling this could be one of those stories on HN where it gets a
bunch of upvotes but not very much discussion.

If you enjoy pop economics/trading books ala Michael Lewis then I'd recommend
Fortunes Formula. Great book focusing mostly on Ed Thorpe who is one of the
fathers of modern day quantitative trading.

[https://www.amazon.ca/Fortunes-Formula-Scientific-Betting-
Ca...](https://www.amazon.ca/Fortunes-Formula-Scientific-Betting-
Casinos/dp/0809045990)

I don't want to speak for an industry, but I don't see it used very much in
practice in investing anymore, mostly because firms nowadays seem to make much
smaller bets much more frequently( think HFT firms) so even pension funds that
don't do investments under say $20-$30 million are usually doing sizes that
amount to 1/50 of Kelly.

It may have use for very small individual investors, think someone with under
$100,000 to invest that wants to pick their own holdings and not jut buy the
market via an ETF.

Having said that, if you want to work on the buy side soon er or later someone
will ask you about it during an interview so its in your best interest to
understand it.

~~~
gwern
I second the recommendation. I expected it to be mediocre at best, but
_Fortune's Formula_ is actually both good on the the technical & philosophical
aspects of Kelly, and on the history & people involved.

~~~
hudibras
William Poundstone is one of my Guilty Pleasures. I've been reading (and re-
reading...) his books for years, starting with his Big Secrets series, and he
is always interesting and thought-provoking, while not taking himself too
seriously. Think a better Malcolm Gladwell, but with a worse PR team.

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unknownsavage
One thing most people don't think about. The kelly criterion isn't
particularly useful for investors, as you need to be able to quantify the
expected outcomes. It's not particularly useful for gamblers (rarely do they
have quantifiable positive expected value), but it's an absolutely amazing
resource for casinos themselves.

Almost every bet that happens on a casino floor the casino can quantify their
expected returns and risks and knowing the state of their bankroll knowing
what is sensible to risk or not.

But other than that, it probably is mainly useful to teach investors a healthy
fear of variance. If it'd be foolish for a casino with a $1M bankroll to let a
roulette player bet more than $12000 on a spin, it might give you a healthy
sense of the importance of diversification.

~~~
thom
Every pro gambler and every syndicate I know is trading based on a model, so
I'm not sure Kelly's quite as rare in gambling as you think. I do think it's
interesting to think about the work required when adding expert judgements on
top of model outputs, though.

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andr3w321
Anyone want to give example inputs for the calculator? I find it very
confusing. Are the Odds input as percentages? Decimal Odds?

I created
[http://sportsbettingcalcs.com/#kelly_calculator](http://sportsbettingcalcs.com/#kelly_calculator)
which I have pre-filled with an example which is much more intuitive to me.
This calculator is more advanced, as it can maximize over multiple bets, but
I'm finding it difficult to use. Another calculator which I have no
affiliation with is [http://www.sportsbookreview.com/picks/tools/kelly-
calculator...](http://www.sportsbookreview.com/picks/tools/kelly-calculator/)

