So there is a term called "Full Kelly" which is were you actually wager the amount given by the formula. This is pretty aggressive and not for the faint of heart. Usually, you do something like a "half Kelly" where you halve the suggested bet amount. Usually because you assume you might be incorrect in your estimated advantage.
What I haven't found yet is some mental math rule to apply this. Given some assumed advantage, what percentage should I "wager"?
What bet you can make consistently gives you at least 51% odds? As far as I know, the best you can do in a casino is 48%. If I plug 48% into the simulation, it states there is no Kelly edge for that bet.
As far as casino games, you might find yourself in this situation with a half-decent poker hand or if you're counting cards in blackjack. Casinos don't hand out advantages over the house, which is why the former is coming from other players and the latter is against the rules. As the sibling comment notes, it is generally irrational to participate in casino games and the simulator is correct to tell you not to do so.
This comes up more when you have (or at least believe you have) information that the counterparty doesn't have.
Bets with a positive edge can be found most commonly via sports betting, poker games, and the stock market. Although note that most bets you can find via such methods do not have a positive edge, and the edge is not labelled.
More generally, look for any area where bets can be made, and professionals exist who make their living winning such bets. There are professional poker players and sports gamblers; there are not professional roulette players.
The problem with sports betting is that if you really want an edge (at least in something like soccer) you could easily end up dropping six figures a year on data licenses to have a decent model and be able to find worthwhile bets across all competitions. That puts a lot of pressure on the amount of capital you need to deploy, which rules out a lot of bookmakers. As you graduate to markets with more liquidity (i.e. Asia) you’ll also find your edge shrinking. Still obviously very doable, but it’s hard to guarantee stress free passive income this way.
Interesting, I recently learned about this.
So there is a term called "Full Kelly" which is were you actually wager the amount given by the formula. This is pretty aggressive and not for the faint of heart. Usually, you do something like a "half Kelly" where you halve the suggested bet amount. Usually because you assume you might be incorrect in your estimated advantage.
What I haven't found yet is some mental math rule to apply this. Given some assumed advantage, what percentage should I "wager"?
Optimal bet size is 2x the coin bias. Dérivation here: https://www.edwardothorp.com/wp-content/uploads/2016/11/TheK...
https://www.lesswrong.com/posts/TNWnK9g2EeRnQA8Dg/never-go-f...
I made a 'game' to help me son get some intuition for bet sizing: https://tools.encona.com/investor
Kelly is nice if you know the odds.
and if you have a lot of bet opportunities.
And if your bets aren't correlated.
In case the author is here:
What's the difference between "win probability of win" and "odds", please? The seem the same thing to me.
And also, what are "decimal" vs. "american" odds, please?
Thanks.
‘Odds’ is the payout, the price of the bet, the prize you may win. And the ‘win probability’ is the probability of winning as the name suggests.
What bet you can make consistently gives you at least 51% odds? As far as I know, the best you can do in a casino is 48%. If I plug 48% into the simulation, it states there is no Kelly edge for that bet.
As far as casino games, you might find yourself in this situation with a half-decent poker hand or if you're counting cards in blackjack. Casinos don't hand out advantages over the house, which is why the former is coming from other players and the latter is against the rules. As the sibling comment notes, it is generally irrational to participate in casino games and the simulator is correct to tell you not to do so.
This comes up more when you have (or at least believe you have) information that the counterparty doesn't have.
On a casino? Play good poker and go for a low rake. Playing the house is always negative EV, by definition.
Bets with a positive edge can be found most commonly via sports betting, poker games, and the stock market. Although note that most bets you can find via such methods do not have a positive edge, and the edge is not labelled.
More generally, look for any area where bets can be made, and professionals exist who make their living winning such bets. There are professional poker players and sports gamblers; there are not professional roulette players.
The problem with sports betting is that if you really want an edge (at least in something like soccer) you could easily end up dropping six figures a year on data licenses to have a decent model and be able to find worthwhile bets across all competitions. That puts a lot of pressure on the amount of capital you need to deploy, which rules out a lot of bookmakers. As you graduate to markets with more liquidity (i.e. Asia) you’ll also find your edge shrinking. Still obviously very doable, but it’s hard to guarantee stress free passive income this way.
The first time I ran across Kelly it was WRT card counting. There is some rare positive off the top video poker out there.
This woulda been helpful for Leo and the 3% of Korea that got liquidated
The Situational Awareness situation was the reason I wanted people to be aware of the Kelly Criterion and submitted this link.
Their estimates: Win probability 100% -- Odds / payout 100-1.
Back in the day when I played HU Hyper-Turbos on Pokerstars I created one of these in Mathematica (not as fancy with Monte-Carlo)
Graph needs a log scale
A similar calculator created many years ago is at https://www.albionresearch.com/tools/kelly