> --- In vpFREE@yahoogroups.com, 007 <007@> wrote:
> > If you believed
> > your utility function were linear, so that you believed you had no
> > diminishing marginal utility of money, would you still prefer the
> > Kelly Criterion over betting your entire bankroll on any advantage?
The more that I think about this question the more I think the answer is "it depends". I'm thinking if you have a linear function of money, and don't care about risk of ruin (as you put it it's factored into the EV already), the optimal one hand strategy would be to bet it all and walk with the results, never gambling again. What if you want to play more than one hand? Then it depends on what your acceptable risk of ruin is. If you go on betting it all, your risk of ruin approaches 100%, which is not a linear function of money, it's boom or bust with bust the likely result. If you want to play as long as possible, then you need a proportional betting system like Kelly, my guess is some multiple between 1 and 2 of the Kelly bet, since with a linear function you are more risk-seeking than Kelly. If you're willing to take some risk of ruin, then that defines your optimum bet size. The question of what risk of ruin is acceptable can also effect the optimum strategy for one bet.
