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Kelly Can't Fail

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389 points jmount | 1 comments | | HN request time: 0.208s | source
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andrewprock ◴[] No.42468550[source]
In practice, there are a number of factors which make using Kelly more difficult than in toy examples.

What is your bankroll? Cash on hand? Total net worth? Liquid net work? Future earned income?

Depending on the size of your bankroll, a number of factors come in to play. For example, if your bankroll is $100 and you lose it all it's typically not a big deal. If you have a $1 million bankroll, then you are likely more adverse to risking it.

What is the expected value? Is it known? Is it stationary? Is the game honest?

Depending on the statistical profile of your expected value, you are going to have to make significant adjustments to how you approach bet sizing. In domains where you can only estimate your EV, and which are rife with cheats (e.g. poker), you need to size your wagers under significant uncertainty.

What bet sizes are available?

In practice, you won't have a continuous range of bet sizes you can make. You will typically have discrete bet sizes within a fixed range, say $5-$500 in increments of $5 or $25. If your bankroll falls to low you will be shut out of the game. If your bankroll gets too high, you will no longer be able to maximize your returns.

At the end of the day, professional gamblers are often wagering at half-kelly, or even at quarter-kelly, due in large part to all these complexities and others.

replies(1): >>42468913 #
1. zahlman ◴[] No.42468913[source]
> In practice, you won't have a continuous range of bet sizes you can make.

You may also be required to pay for the privilege of placing a bet (spread and commissions in trading; the rake at a casino table).