Overly Sharpened Blog

They never told me what happens when you sharpen the saw too much...

Kelly criterion

Aside from the obvious issue of compensating for errors, I don't have a good intuitive understanding of why one wouldn't want to maintain a bet as close to the kelly bet as possible.

It seems that the usual complaint seems to be that you want to minimize your downside risk in the short term, and a kelly bet is concerned only with maximizing the long term gains.

What doesn't sit well:
  • "Short term" is already well known to be a bad measuring stick. You measure your progress over months and years, not days and weeks. Optimizing for the short term isn't much different than sitting down at a $1-$2 no limit poker game with your last $50, hoping that you can play so conservative that you somehow stave off the inevitable ruin.

  • I suspect that the simple explanations are applying a rule-of-thumb in order to model the needs of a career player: the competing constraints of paying the bills while also growing the bankroll. My intuition is that including this explicitly, or baking the effect into an "effective bankroll" (instead of a fudge factor on the ideal bet) would give a better over all result, or at the very least, a more intuitive explanation.
I need to think about this more.


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