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Deriving the Kelly Criterion to Maximise Profits

(obrhubr.org)
50 points obrhubr | 1 comments | 12 Oct 24 21:16 UTC | HN request time: 0.614s | source
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gwbrooks ◴[17 Oct 24 23:06 UTC] No.41874712[source]▶
A million years ago, when you could still find video poker games with 100%+ theoretical return or poorly thought-out promotions offering enough cash-back to get you over 100%, we'd calculate the Kelly number for a given opportunity -- the bankroll necessary to ride out hills and valleys in favorable situations.

Spoiler: It's almost always 3-4x the value of a royal flush. So you needed $12-16k if you were playing a $1-per-coin game with a 1% edge at a pretty good clip.

And what do you earn with perfect play in that situation? The princely sum of around $30 an hour.

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bdjsiqoocwk ◴[18 Oct 24 01:09 UTC] No.41875481[source]▶
I would like to understand in detail what you just wrote.

"$1 per coin game" is this a game where you put in $1 to play and get paid either $2 or $0 with 50-50 probability (0 expected).

And the what does it mean %1 edge? Does it mean the probabilities are such that the expected payout is 1c per coin flip?

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1. monicaaa ◴[25 Oct 24 16:40 UTC] No.41946948[source]▶
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