this post was submitted on 13 Dec 2023
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Anon's father is smart (sh.itjust.works)
submitted 11 months ago by Early_To_Risa@sh.itjust.works to c/greentext@sh.itjust.works
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[–] archon@sh.itjust.works 4 points 11 months ago (2 children)

Just bear in mind that the utility of money is nonlinear, so Kelly will overextend you - use something like max log-value and rederive.

I'm too stupid to piece together what this means, but I'm interested.

Kelly is a betting stake formula? But deriative of max log-value will provide a better result?

[–] clara@feddit.uk 2 points 11 months ago

i got you, watch this for understanding of kelly criterion

https://www.youtube.com/watch?v=_FuuYSM7yOo

[–] steventhedev@lemmy.world 1 points 11 months ago

Kelly is the betting stake formula - just plug in the expected value and it will tell you how much of your money you should gamble to maximize your winnings over time. But it does that with more or less a 50-50 chance of you losing all your money. Because winning 10 dollars means a lot more to someone who makes minimum wage than a millionaire, you need to skew the formula to take that into account.

The easiest way to do that is to use the log-value of money, and rederive the kelly criterion based on that value instead.

From what I recall the math works out so that unless you have a substantial pile of money, the ideal number of lottery tickets is always between 0 and 1.