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Kelly Can't Fail

(win-vector.com)
389 points jmount | 1 comments | 19 Dec 24 23:07 UTC | HN request time: 0.202s | source
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JohnMakin ◴[20 Dec 24 02:50 UTC] No.42467834[source]▶
Kelly criterion is one of my favorite game theory concepts that is used heavily in bankroll management of professional gamblers, particularly poker players. It is a good way to help someone understand how you can manage your finances and stakes in a way that allows you to climb steadily forward without risking too much or any ruin, but is frequently misapplied in that space. The problem is kelly deals with binary results, and often situations in which this is applied where the results are not binary (a criteria for applying this) you can see skewed results that look almost right but not quite so, depending on how you view the math
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1. bloodyplonker22 ◴[20 Dec 24 03:17 UTC] No.42467965[source]▶
You are right that Kelly criterion deals with binary results. This won't work for poker. In poker, we use expected value because wins and losses are not binary because of the amount you win or lose. Once you figure out your approximate EV, you use a variance calculator in addition to that (example: https://www.primedope.com/poker-variance-calculator/) to see how likely and how much it is you will be winning over a certain number of hands in the long run.