Re: [vpFREE] Re: Pressing your bet

If you bet your whole bankroll on any edge, then X percent of the time you
will bust and then it's impossible to grow the bankroll. That severely
limits your average bankroll growth.

Kelly seeks to maximize the average rate of growth of a bankroll. In other
words, if you bet according to Kelly at a +EV game then you will experience
a greater average bankroll growth than if you bet any other way. If you bet
more than Kelly, then you will occasionally experience too large a loss and
have to waste a lot of time "grinding" back up. If you bet less than Kelly,
then you will see more consistent profits, but you won't grow as fast as
Kelly.

Indeed Kelly won't "bust" a bankroll if "bust" is defined as taking it to
literally zero.

The catch is that the Kelly model requires you to increase or decrease your
wager with every change in your bankroll. So if you were playing "according
to Kelly" then the moment you lost a hand at a $0.25 machine, you'd have to
try to find a $0.2497 machine to play the next hand. Obviously this is
impossible.

So the reality of gambling is that you play $1 for a while and if you lose
you still play $1 until your bankroll takes a significant hit. Then you drop
down to $0.25. If you continue to lose then you drop down to $0.05. But at
some point, dropping down and playing for ever lower stakes becomes a waste
of time and more lucrative ways to spend your time-like getting a
job-predominate. So there's a point at which your bankroll is effectively
busted even if it's not literally zero, because the bankroll can no longer
support Kelly betting that will provide an acceptable hourly winrate.

This is why most people recommend betting less than Kelly if you are doing
this for a living, because betting full Kelly will increase the risk that at
some point you'll have to drop down to nickels (or whatever stakes are too
small to continue playing).

Which is why, to me, Kelly is not a useful model for the vast majority of
gamblers. Most people who gamble aren't in the bankroll growing business.
Even pro players aren't. They are much more interested in bankroll
preservation than optimal bankroll growth.

On the other hand, if you're Warren Buffett and your goal is to grow your
$50 billion company as fast as possible, Kelly will certainly inform your
decisions well.

Ed

On Tue, Sep 20, 2011 at 7:21 PM, 007 <007@embarqmail.com> wrote:

> **
>
>
> Ed wrote:
>
> >IMO, the Kelly Critereon is one of the most overused and misused concepts
> in
> >gambling.
> >
> >Kelly Critereon is a mathematical method for maximizing the rate of
> bankroll
> >growth at a +EV game with a known edge and variance.
>
> I must have a mental block about the phrase "maximizing the rate of
> bankroll growth," since I can't get past the idea that maximizing
> one's average bankroll requires betting one's entire bankroll on any
> advantage. How is maximizing the rate of bankroll growth different
> from maximizing average bankroll? In different words, can you explain
> what the Kelly Criterion maximizes?
>
>
> >It's not designed to ensure you don't bust your bankroll.
>
> I don't know if it was designed to do that, but, theoretically, it
> will have that effect.
>
>
>


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