Meaning and Origin of Kelly System of Betting

kahlmyishmael

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Aug 26, 2006
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Sometimes on the gaming forums, one sees the mention of "kelly betting" or the "kelly criterion"...

I'm sure somewhere on the tech section of the *****forum, a better account exists than this...

...but this is what I recall reading from the late Huey Mahl's Handicapping Journal known as "First Twenty"....

..in this first post, i'll explain what the Kelly Criterion actually represents to the bettor

WHAT THE KELLY CRITERION ACTUALLY STATES:

for the professional gambler wagering into a positive, quantifiable edge...

...it states the OPTIMAL bet size as a percentage of bankroll...

...for example, a player who, IN THE LONG RUN, could CONTINUOSLY pick at 57%(4 wins for every 3 losses) @-110.....

...should bet 9.7% of his available wad on each discreet(non-simultaneous) betting event.



I believe it was Armani or Bad Co. at the ***** Forum who stated we all need our heads examined :smile105: since 94% of all who bet sports are losers.

Kelly Betting shows the truth of those words...for the winning picker can diminish profitability and even ruin himself by overbetting the percentage...in factttttt....

UNDERBETTING by the same amount as one OVERBETS by shows the same diminished level of profitability....buttt...

...one(presumably those 6% Armani spoke of) increases one's bankroll safety....

..better to underbet, Kelly States...not better "profit"-wise, but "safety-wise"



Kelly Betting will show you how to obtain optimal returns for various positive wagering proficiency levels.

WINNING PROFICIENCY @ -110

52.38% WINNING PROFICIENCY....... 0% OPTIMAL BET SIZE

53.1%.............................................1.5%

53.85%............................................3.1%

54.54%.............................................4.6%

55.55%.............................................6.7%

57%...................................................9.7%


In the next post, i'll relate what Mahl stated about the Kelly Criterion...and his musings on the possible origins
 

kahlmyishmael

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Aug 26, 2006
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For those of you old enough to remember, Huey Mahl was one of the contemporaries of Mike Lee, Mort Olshan, Billy "The Greek" Vassal, Phil Steele, and Kelso Sturgeon...


John Kelly was an electrical engineer from AT&T assigned to explain to his department's superiors a very technical subject pertaining to the distribution of electrical energy along power lines of varying efficiency...

He used an analogy...

He set up a hypothetical gambling shop where bets were past-posted a few minutes after baseball games had started...

...since the outcome of the games had not yet been determined... the bettors were working to some advantage with the inside info...

..the quirk is that the gambling analogy was perfect for gambling plays...

Canadian statistician, William Ziemba, used Kelly to look for favorable payouts in SHOW POOLS on prohibitive horse-racing favorites during the later 8th and 9th races....

...for even-money payouts...the math is much simpler...you bet in % what your advantage actually is in %


Mahl mused that at the time Kelly was composing his masterpiece...it had just been a short time since US Senator and losing VP candidate, Estes Kefauver(D-Tenn) had conducted hearings into gambling and organized crime...

...wow!...what a great way to come up with the perfect betting system for those fortunate few able to work a small positive edge over the house
 
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