Tuesday, 29 August 2017

Casino - The Kelly Criterion

the kelly criterion
Kelly Criteron is a mathematical method that helps you determine how much money you should stake on a particular bet when the stacking of odds favours you. With gambling roundly acclaimed as an appeal to emotion, it is wise to take a different approach and put not just your heart, but also your mind in the placement of a bet. Many times attention is placed on who to bet on and what bet option to take, but how much money to place- an equally important factor- is often ignored.

The formula created by J. L. Kelly, Jr in 1956 has been used a lot over the years, and a good number of gamblers attest to its effectiveness. It has a complex derivation explanation; too much trouble for those interested in just placing a bet. Here’s a simplified version:

(BP - Q) / B
B = the Decimal odds -1
P = the probability of success
Q = 1-p (probability of failure)

Basically, the more chances you have of winning, the more money you should stake out, and vice versa.

And an example of how you can actually put it to use:

Let’s say you have 100 dollars you intend to stake in a race between two horses. Your favoured horse has a 54% winning chance. Thus:

P= 0.54
Q = 1-0.54 = 0.46
B = 2-1 = 1.
(0.54x1 – 0.46) / 1 = 0.08
0.08 % is the percentage of your available stake that you should place on this bet.
0.08 x 100 = 8 dollars.

There has been a back and forth discussion on whether the Kelly Criterion, though effective, is viable in all types of betting. There are those who claim it is not applicable in sports betting, the most common betting platform today. Experts dispute this as a case of miscalculation of probabilities, which makes the application faulty from the onset. There is also issue of big profits. Kelly Criterion is quite disciplined, and as such, it is not a guarantee for huge returns on small bets. Its only assurance is guarding you from illogical risk.

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