Why the Kelly Criterion is not a good bankroll management system

[MrX]

If quantification is the issue here, how are you sure that you have an edge or that you aren't overbetting your edge when you are flat betting?

I agree with this 100%. Inability to quantify your edge is overwhelmingly the number 1 argument given against Kelly, and I think it should be way down the list, if it should even be there at all. If you're sure enough that you have an edge to be betting, you should have a good enough estimate of that edge to utilize Kelly.

What doesn't get mentioned enough, in my opinion, is that almost no one has the utility function that Kelly assumes. It sounds like a no-brainer that maximizing long-term bankroll growth is what we want, but there's a lot more that goes into quality of life than long-term bankroll growth. There is a lot of short-term stuff that is extremely important to a person's happiness.

Most people experience diminishing returns with larger and larger wins. There's a much bigger psychological difference between losing $500 vs winning $500 than there is between winning $3000 and winning $4000. I think that a big part of the reason that Chase systems are as popular as they are is because their resulting high frequency of small wins and small frequency of large losses results in much greater utility for the average bettor than other types of money management.

Take two recreational gamblers who are going to lose $5000 over the course of the year. One is flat betting and experiences a fairly steady decline of his bankroll over the course of the year. He wins about half of his days. The other chases losses and wins 19 out of 20 days. His occasional bad day wipes out all of his wins and then some. Most people will have a lot more fun being the second gambler, especially if they're making minor changes (filters!) after each loss so they can continually think they've got it right. I think that for most losing recreational bettors, a chase-type money management system is far superior to a flat-betting system.

Professionals and other gamblers serious about long term profits have a different utility function, of course, but I think most make the mistake of forgetting that the goal is to maximize quality of life, not just bankroll. Most underestimate how much the short-term affects their quality of life.

When I started out, I used full-Kelly for my first season. My model over-performed and I sextupled my bankroll, so I can't say anything bad about my experience with full-Kelly. After that season, though, I looked a little deeper into what full-Kelly would entail going forward, and I never went back to it.

I think anyone with a quantitative model and the ability to project seasons would be well served to experiment with the results of different staking strategies and make an honest assessment of how the results would have affected your life throughout the entire period. Don't focus only on the final bankroll. Take a good look at the entire time-line and how it would have affected you. How many swings would have you miserable and doubting yourself and your model? How many times would you wonder if you pissed off God or something?

Those times are not fun, and lessening their frequency and brutality is often worth sacrificing some long-term growth. Most with the ability to develop a profitable model will get rich and will run into difficulty getting down as much money as they should long before retirement age anyway, so why not make the ride more enjoyable?

[u21c3f6]

MrX, an excellent post and a lot of similarities to my own experience.

I too prefer a comfortable "ride". I am more concerned with being comfortable with the fluctuations of my bankroll than I am concerned with optimal growth.

Joe.

[reno cool]

MrX, an excellent post and a lot of similarities to my own experience.

I too prefer a comfortable "ride". I am more concerned with being comfortable with the fluctuations of my bankroll than I am concerned with optimal growth.

Joe.

I think this would be true for the vast majority of pros who gamble exclusively.

Many nice points X.

[roasthawg]

I agree with this 100%. Inability to quantify your edge is overwhelmingly the number 1 argument given against Kelly, and I think it should be way down the list, if it should even be there at all. If you're sure enough that you have an edge to be betting, you should have a good enough estimate of that edge to utilize Kelly.

For me personally I find it far easier to estimate whether or not I have an edge versus estimating the actual size of that edge. I'm fairly efficient at determining whether or not an individual bet is +ev or not but I have a large percentage of error in trying to determine that actual win % of said bet. That's why I use a flat 2.5% on all of my bets. I consider this to be kelly staking as I'm assigning a flat win probability of about 53.5% to all of my bets. It works out well for me as I get the compounding factor as my bankroll grows but I can spend the majority of my time simply trying to "pick winners" rather than estimating my edge.

I also agree 100% with what you were saying about the physcological factor of losing big bets. When I first fund an account with my own cash I'm never satisified with 2.5% per bet as I'm anxious to increase my bankroll. Once my bankroll has grown and my kelly bets are a lot bigger the reverse happens and I want to get more conservative... 2.5% seems like too large a risk per wager. It's obviously all relative to what every individual deems "a lot" of money. I force myself to stick with the 2.5% in all circumstances but it's hard sometimes.

[twister]

I agree with this 100%. Inability to quantify your edge is overwhelmingly the number 1 argument given against Kelly, and I think it should be way down the list, if it should even be there at all. If you're sure enough that you have an edge to be betting, you should have a good enough estimate of that edge to utilize Kelly. What doesn't get mentioned enough, in my opinion, is that almost no one has the utility function that Kelly assumes. It sounds like a no-brainer that maximizing long-term bankroll growth is what we want, but there's a lot more that goes into quality of life than long-term bankroll growth. There is a lot of short-term stuff that is extremely important to a person's happiness. Most people experience diminishing returns with larger and larger wins. There's a much bigger psychological difference between losing $500 vs winning $500 than there is between winning $3000 and winning $4000. I think that a big part of the reason that Chase systems are as popular as they are is because their resulting high frequency of small wins and small frequency of large losses results in much greater utility for the average bettor than other types of money management. Take two recreational gamblers who are going to lose $5000 over the course of the year. One is flat betting and experiences a fairly steady decline of his bankroll over the course of the year. He wins about half of his days. The other chases losses and wins 19 out of 20 days. His occasional bad day wipes out all of his wins and then some. Most people will have a lot more fun being the second gambler, especially if they're making minor changes (filters!) after each loss so they can continually think they've got it right. I think that for most losing recreational bettors, a chase-type money management system is far superior to a flat-betting system. Professionals and other gamblers serious about long term profits have a different utility function, of course, but I think most make the mistake of forgetting that the goal is to maximize quality of life, not just bankroll. Most underestimate how much the short-term affects their quality of life. When I started out, I used full-Kelly for my first season. My model over-performed and I sextupled my bankroll, so I can't say anything bad about my experience with full-Kelly. After that season, though, I looked a little deeper into what full-Kelly would entail going forward, and I never went back to it. I think anyone with a quantitative model and the ability to project seasons would be well served to experiment with the results of different staking strategies and make an honest assessment of how the results would have affected your life throughout the entire period. Don't focus only on the final bankroll. Take a good look at the entire time-line and how it would have affected you. How many swings would have you miserable and doubting yourself and your model? How many times would you wonder if you pissed off God or something? Those times are not fun, and lessening their frequency and brutality is often worth sacrificing some long-term growth. Most with the ability to develop a profitable model will get rich and will run into difficulty getting down as much money as they should long before retirement age anyway, so why not make the ride more enjoyable?

Talking about utility function, loss aversion, behavioural economics etc is a non-sequitur for a professional gambler. Fact is, most professional gamblers will have learnt to control their emotions (at least, I'd hope so). Professional gamblers are so readily exposed to those emotions, I'd expect that it wouldn't be long before they mastered them. In fact, with the help of hypnotherapy it is so easy to have peace of mind 24/7, that your emotions should always be in check. Knowing you have a long term edge and having confidence in your methodology is all it takes to negate those mood swings.

If, however, you can't keep peace of mind then yes - utility function should be your number 1 concern. There is more to life than being rich.

[bleedblue]

MrX,

Very nice write up. The psychological factor is very important to me, and probably should be more important to others.

Most people experience diminishing returns with larger and larger wins. There's a much bigger psychological difference between losing $500 vs winning $500 than there is between winning $3000 and winning $4000.

very very good point

[bleedblue]

Fact is, most professional gamblers will have learnt to control their emotions (at least, I'd hope so).

Coming from a poker background, I can tell you that there are alot of pros that can't control their emotions. It might not be as bad with other advantage gamblers, but I'd bet there are very few who aren't affected by good/bad runs.

[Peep]

I find the streaks and swings to be very difficult to take.

I was comfortably puttering along with a 11K bankroll last spring, betting $200-$300 a game when a strange thing happens. I go on a complete tear, find it hard to lose a bet, and work my way up to 100K by the SBR Bash in August. Those whom I met there will remember me as having a carefree "boy this is an easy game" attitude towards it all. Felt like I had finally mastered it all, there was no limit.

And then the coin flipped, the good times were all gone, the wheels fell off. Within a matter of four months I had managed to lose 50K back, and did this with my bets cut back to $300-$400 most of the way down, finishing off this last month with $100 bets because

1) I had naturally spent most of the 100K on the way up, why not, way I was going I had plenty of money to burn anyways and

2) After losing day after day for three and a half months (I lost money 23 of the first 27 days of November, that takes talent), I am now so gunshy that $100 seems like a big bet to me.

Losing day after day just drains......

[twister]

Coming from a poker background, I can tell you that there are alot of pros that can't control their emotions. It might not be as bad with other advantage gamblers, but I'd bet there are very few who aren't affected by good/bad runs.

If this is the case, I hope that they realise that it is a case of "not knowing HOW to" rather than "not being ABLE to". Having peace of mind is easy to come by with the right techniques, as I stated above. Meditation is a good way too. Impossible to go on tilt when you have peace of mind. At the very least, reading some psychology books based on poker/day-trading is a MUST for a pro gambler.

[MrX]

Fact is, most professional gamblers will have learnt to control their emotions (at least, I'd hope so). Professional gamblers are so readily exposed to those emotions, I'd expect that it wouldn't be long before they mastered them. In fact, with the help of hypnotherapy it is so easy to have peace of mind 24/7, that your emotions should always be in check. Knowing you have a long term edge and having confidence in your methodology is all it takes to negate those mood swings.

Hmm, interesting. Okay, so I've only known about 15 pros well enough to make any kind of judgment on, but I wouldn't say that any of them are unaffected emotionally by downward fluctuations.

If anything, I think pros are more emotionally affected by downswings. They are missing a huge option of just not gambling and focusing on their job. They've also put a lot of work into finding edges. This puts them in a frame of mind that, when they win, well, that's what is supposed to happen. But, when they lose, they feel cursed. I'm not saying they logically think this way, but when you work really hard at something, rewards naturally feel appropriate, and bad results feel undeserved and unfair.

What pros are generally pretty good at is preventing their emotions from affecting their decision-making. But, I haven't met a gambler who is such a zen master that he experiences the same quality of life during downswings as upswings. Maybe it's possible, but I have to believe it's very far from the norm.

I was comfortably puttering along with a 11K bankroll last spring, betting $200-$300 a game when a strange thing happens. I go on a complete tear, find it hard to lose a bet, and work my way up to 100K by the SBR Bash in August. Those whom I met there will remember me as having a carefree "boy this is an easy game" attitude towards it all. Felt like I had finally mastered it all, there was no limit.

And then the coin flipped, the good times were all gone, the wheels fell off. Within a matter of four months I had managed to lose 50K back, and did this with my bets cut back to $300-$400 most of the way down, finishing off this last month with $100 bets because

1) I had naturally spent most of the 100K on the way up, why not, way I was going I had plenty of money to burn anyways and

2) After losing day after day for three and a half months (I lost money 23 of the first 27 days of November, that takes talent), I am now so gunshy that $100 seems like a big bet to me.

Losing day after day just drains......

Wow, that's a hell of a run, both ways. I'm sorry to hear about your downswing. That's no fun. Will you attend another Bash after that kind of negative reinforcement?!

Do you mind if I ask? What was your projected edge and what fractional Kelly were you using? How many bets/day average? I'm just curious.

[twister]

Hmm, interesting. Okay, so I've only known about 15 pros well enough to make any kind of judgment on, but I wouldn't say that any of them are unaffected emotionally by downward fluctuations. If anything, I think pros are more emotionally affected by downswings. They are missing a huge option of just not gambling and focusing on their job. They've also put a lot of work into finding edges. This puts them in a frame of mind that, when they win, well, that's what is supposed to happen. But, when they lose, they feel cursed. I'm not saying they logically think this way, but when you work really hard at something, rewards naturally feel appropriate, and bad results feel undeserved and unfair. What pros are generally pretty good at is preventing their emotions from affecting their decision-making. But, I haven't met a gambler who is such a zen master that he experiences the same quality of life during downswings as upswings. Maybe it's possible, but I have to believe it's very far from the norm.

True. I suppose my personal experience clouded my views on the matter. When I learned about gambling on the MLB here in the UK, I was taught by/joined a group of seasoned pros who, in their teachings to me, made the psychology part of gambling a very prominent part of the wisdom they were passing down to me. I just assumed, given the importance that they placed on it, that most pros would have similar outcome/viewpoints on the matter.

I still believe that anyone can overcome the psychological side. If I could do it, anyone could. I used to be the guy who would bet half his bankroll on one game whilst on tilt from an 0-4 night. Now I can drop 27 units in a week and barely flinch (which happened to me the week leading up to the all-star game).

[donjuan]

What pros are generally pretty good at is preventing their emotions from affecting their decision-making. But, I haven't met a gambler who is such a zen master that he experiences the same quality of life during downswings as upswings. Maybe it's possible, but I have to believe it's very far from the norm.

This. Do you come from a finance background Mr. X?

[MrX]

True. I suppose my personal experience clouded my views on the matter. When I learned about gambling on the MLB here in the UK, I was taught by/joined a group of seasoned pros who, in their teachings to me, made the psychology part of gambling a very prominent part of the wisdom they were passing down to me. I just assumed, given the importance that they placed on it, that most pros would have similar outcome/viewpoints on the matter.

I still believe that anyone can overcome the psychological side. If I could do it, anyone could. I used to be the guy who would bet half his bankroll on one game whilst on tilt from an 0-4 night. Now I can drop 27 units in a week and barely flinch (which happened to me the week leading up to the all-star game).

Interesting. I think that most pros definitely put a strong focus not letting bad swings affect their decisions. I think that most, though, view the anxiety and stress of downswings as inevitable and focus on not letting that anxiety affect their gambling. It sounds like your group takes the approach of reducing/eliminating the anxiety instead.

I have to say, your way sounds better.

Most of the successful guys I know come out of the internet poker generation and are very analytical in nature. Some of the others are more School of Hard Knocks types. Neither of these groups are particularly prone to meditation and hypnotherapy. It seems to me that the types who are drawn to meditation and the types who are drawn to gambling have a very small intersect. Maybe it's different in the UK!

[MrX]

This. Do you come from a finance background Mr. X?

Engineering.

But, I'm trying to think more like an economist these days.

[Peep]

Wow, that's a hell of a run, both ways. I'm sorry to hear about your downswing. That's no fun. Will you attend another Bash after that kind of negative reinforcement?!

Do you mind if I ask? What was your projected edge and what fractional Kelly were you using? How many bets/day average? I'm just curious.

Yes, wasn't the bash's fault lol.

I was flat betting, started off with $200 flat bets, worked my way up to $800 average. Did cash a $3200 ticket on the All Star game. Then worked my way back down to the $100 I am at today.

I was/am betting mostly prop/quarters/2nd half stuff, same stuff I have always played. I thought at the time I played them all were positive EV.

I post this not to show how stupid/smart I am, just to point out that some huge swings are possible even with flat betting a relatively small percentage of bankroll (1% to 2%).

[Dark Horse]

Kelly is mathematically perfect. In the test tube laboratory that excludes the impact of Time. When you add Time, you run into temporary fluctuations. And when one of those (the negative) goes to an extreme, Kelly is deadly.

Even when an edge is correctly quantified, it remains subject to temporary fluctuation. Fractional Kelly recognizes that, but not necessarily for clearly identified reasons. Kelly lacks focus in that it doesn't consider action points, which give a crucial added dimension to the strength of a system. Action points provide a safety net that Kelly lacks. And Kelly is also imperfect in that it assumes (inherently) that a sport itself remains constant from season to season, where in reality rule changes can undermine some of the strongest angles. Obviously, that is problematic, because it may have taken years to develop such angles...

This is why there are no surviving sports bettors who use full Kelly. 'There are old pilots and there are bold pilots, but there are no old bold pilots'.

I have only one system that I would even consider worthy of full Kelly, and it is consistently hitting at 70% ATS. This took years to develop. It is just one angle, and I would be happy if it showed up 40-50 times a year. Because of its relative rarity I would be foolish not to raise my bet size when it does. I don't (yet) consider myself a Kelly bettor, but my bet sizes do vary widely, based on perceived edge.

Perhaps the biggest danger facing beginning sports bettors, especially in relation to Kelly, would be data mining. Anybody who hasn't cleared that should stay far far away from Kelly.

Another obstacle is experimental edges (and many perceived edges never pass that grade). If I read the board (SBRodds) and recognize a 65% angle based on one or two months of line movements (not RLM), is that data mining or not? Yes. Everything of that nature is data mining, until it works going forward in time. And, almost certainly, the edge will then be lower; the point being that is was a temporary fluctuation that attracted your attention in the first place. So, until cleared from data mining, bet the lowest bet size; the 'experimental' one.

Every approach has its dangers, and these must be understood before committing to Kelly. For instance, in case of a line movements approach, I'm directly tied in with the linesmakers. They may adjust their approach without my knowledge. A blind side! Because of that, again, revert to lowest bet size.

Fractional Kelly is preferable, but is an easy way out, because it sidesteps the uncertainties inherent in sports betting, rather than identify them for each approach. There is a better way than Kelly, and it involves action points. I'm certain of it. But the formula has yet escaped me. lol.

[Wrecktangle]

In an earlier post, I mentioned when and how I used full Kelly.

It does work but you must be a serious student of Bayesian Priors and a damn fine modeler. BTW, it is virtually impossible for a "seat of the pants" capper to use Kelly. No consistancy to grade against.

[Dark Horse]

Did we define BR? I remember this discussion with Ganch, and he specified that BR, for Kelly purposes, is the value of everything you own. That's drastically different from setting aside a small amount for full Kelly, which could itself be qualified as 'experimental'.

If I understand correctly, the driving force behind Kelly is always to maximize profit. I would call that greed, and it comes with its own pitfalls. I don't need a math degree to know that. If we take the above definition of BR, maximizing profit would become the number one principle to live by. Not making money or profiting, but maximizing profit. A rather sad philosophy.

[FreeFall]

I find the streaks and swings to be very difficult to take.

I was comfortably puttering along with a 11K bankroll last spring, betting $200-$300 a game when a strange thing happens. I go on a complete tear, find it hard to lose a bet, and work my way up to 100K by the SBR Bash in August. Those whom I met there will remember me as having a carefree "boy this is an easy game" attitude towards it all. Felt like I had finally mastered it all, there was no limit.

And then the coin flipped, the good times were all gone, the wheels fell off. Within a matter of four months I had managed to lose 50K back, and did this with my bets cut back to $300-$400 most of the way down, finishing off this last month with $100 bets because

1) I had naturally spent most of the 100K on the way up, why not, way I was going I had plenty of money to burn anyways and

2) After losing day after day for three and a half months (I lost money 23 of the first 27 days of November, that takes talent), I am now so gunshy that $100 seems like a big bet to me.

Losing day after day just drains......

You need to remember that we know nothing. I'm currently on my way up with stocks right now, but am scared for what is to come as I don't want to lose my gains, but we are in this for the long run.

...
If anything, I think pros are more emotionally affected by downswings. They are missing a huge option of just not gambling and focusing on their job. They've also put a lot of work into finding edges. This puts them in a frame of mind that, when they win, well, that's what is supposed to happen. But, when they lose, they feel cursed. I'm not saying they logically think this way, but when you work really hard at something, rewards naturally feel appropriate, and bad results feel undeserved and unfair.
...

Man isn't that the truth, but hey it's what we are all here for. No risk no reward, scared money doesn't make money. It's what makes us feel alive and enjoy waking up to try again the next day. At least for me. Though the rush doesn't compare to skydiving it helps give my sober life some reason which is all we all ever want.

[reno cool]

Another thing that should be mentioned is that Kelly would treat a large or small br the same. Whereas in reality there is less need to be as risky with a larger bankroll. A small bankroll can and should be played more aggressively.

[Thremp]

Another thing that should be mentioned is that Kelly would treat a large or small br the same. Whereas in reality there is less need to be as risky with a larger bankroll. A small bankroll can and should be played more aggressively.

Other than in your own mind, what do you have to back this? Are you referring to small cash BRs that comprise smaller chunks of your Kelly BR than a larger amount would? Somehow I don't think that is the idea you're after.

[reno cool]

No. Lets assume in both cases your bankroll is 100% of all money you have, (also assume no other income)
A person with a larger bankroll can afford to lower risk and still expect to make a comfortable amount for his expenses.
Where as aggressiveness with a small bankroll can be mandatory to reach the same.

[siabdo23]

GUYS I am new to all this which I dont understand a lot but its very informative

[Skanedogg]

I am new to this board, but this is a fascinating discussion.

I initially read about the Kelly Formula a few years ago in a book given to me by a friend of mine who works in an investment firm. Before then I had never heard of it. Now, I have read hundreds of articles about it and still am mystified by it. The fact is that Kelly figures into a lot of investment portfolio theory in some fashion -- so somebody thinks it is worth using.

For those of you who have never read Kelly's original article (and the background for it in Fortune's Formula), I think you should check it out because it puts the "ideas" behind his formula into a proper context. Kelly developed the formula as a means to "cheat" books -- his idea was IF you can intercept information as to who won a particular sporting event (his example was horse racing) as it travels the "lines" from the event to the bookmakers and place wagers BEFORE the books receive the information as to who won, how can you then maximize your profits? In his scenario, there is literally one variable over which you have no control: someone giving BAD information. Short of that "lie" (or mistake), you KNOW who won. Betting a simple unit style in that situation with (at least NEARLY) perfect information would be "a waste of resources" and you would not be maximizing the earning potential of your bankroll.

Gambling for us is a completely different animal, and I think that is the reason that Kelly's Formula doesn't work as well with sports betting. As you can probably guess, my basis for this is that there are far more VARIABLES in our application of KELLY'S formula than in his plans. For example, buying picks from a tout brings in 1,000,000 variables concerning the information upon which the tout based his play (such as news from thestadium that a particular running back is injured and will not start); the mental state of the tout; an in game injury, just to name a few. These things complicate the application of the formula dramatically -- I would dare say it is IMPOSSIBLE to properly track the variables and get a completely accurate sample upon which to base using the Kelly formula. So I don't necessarily think the logic behind Kelly is flawed -- I think it is our inability to properly apply it as he intended. Kelly intended to KNOW who won before the bet was placed.

Now someone is going to say, "but it was used in blackjack successfully." I know this and think Blackjack proves my point. If you are properly able to count cards and do the math, blackjack has very few other external variables (assuming perfect math on the part of the card counter/ player). To me, blackjack is basically the middle ground between Kelly's perfect world scenario and sports gambling.

Wrecktangle's description sounds to me like he has minimized some of the external variables by accurately tracking results. Personally, I think if you pick your own plays you go a long way to minimizing the variables within your control. I personally use Half-Kelly with my own NFL plays -- and it works. I dropped it to half Kelly because I think it helps "minimize" the effects of those external factors over which I have no control. As a result, I never use Kelly with tout plays -- I bet units. I use kelly only for my NFL plays and goofy trends that I follow in college football (such as better rushing team and better rushing defense at home catching points). In these applications, it works for me.

Love to hear your thoughts.

[Thremp]

No. Lets assume in both cases your bankroll is 100% of all money you have, (also assume no other income) A person with a larger bankroll can afford to lower risk and still expect to make a comfortable amount for his expenses. Where as aggressiveness with a small bankroll can be mandatory to reach the same.

This line of thought quickly leads to implosion at any level of BR.

[reno cool]

Why is it so difficult to admit that a person with a million$ bankroll does not need to risk a high % of it the same way a person with a 10k bankroll would?

[roasthawg]

Why is it so difficult to admit that a person with a million$ bankroll does not need to risk a high % of it the same way a person with a 10k bankroll would?

You don't NEED to risk anything... it's all about risk tolerance vs expected growth. If your sole purpose is to maximize the expected growth of your bankroll then you'd be well advised to bet full kelly (assuming you know your edge). If you have a low risk tolerance then there's a good chance you won't be willing to bet full kelly... you'd gladly sacrifice some expected growth for a lower risk.

[u21c3f6]

Why is it so difficult to admit that a person with a million$ bankroll does not need to risk a high % of it the same way a person with a 10k bankroll would?

Reno's point has been my personal experience.

Starting out with a relatively small bankroll, I had no problem betting full-Kelly. But as that bankroll grew I began to get more and more uncomfortable with the wilder swings of the larger bankroll that full-Kelly can produce. I experimented with different fractional Kelly's and settled on half-Kelly. Interestingly enough, as my bankroll increases, I actually find myself betting less than half-Kelly to keep the wagers in my comfort zone. It's like a sliding scale, as the bankroll goes up, the Kelly % goes down.

To clarify, I only used Kelly in its purest form very early on, but I use the concepts I learned from using Kelly. Those concepts for me included the sizing of my wagers, how to compare different % edges with different odds and bankroll growth even though through the use of Kelly I am no longer concerned with "optimal" growth because that requires being able to withstand some wilder swings of bankroll and that is uncomfortable for me.

Another thing I do with my bankroll is what I call plateaus. I don't increase or decrease my wagers after each and every event like Kelly assumes, I have ranges with the high of that range being half-Kelly. I will use the actual example that got me started in the use of plateaus. I was at Aqueduct (many years ago) and made (4) wagers to win. I had (2) winners both at 7-1!!! Frankly, that was very unusual for me. First, it was highly unusal for my method of play to identify a 7-1 shot to play as most of my wagers tended to be in the 2 to 4 to one range. But to identify two 7-1 shots on the same day and both win was unreal for me. At the time my method was showing about a 20% edge. But on this day I collected over $16 for every $4 wagered. Of course on average I should only receive $4.80 for every $4 wagered so unless my edge went up, I have a lot of money to give back to maintain my 20% edge average. So to counter this (though not mathematically perfect but perfect for my psyche) I now use plateaus and ranges. I keep track of where I should be based on my edge to keep my bankroll in check. It also helps me quickly identify if something is wrong with my edge % to prevent me from overbetting and/or betting on an edge that may no longer exist.

Hope that made sense. I think it is important that one finds a money management style that fits their personality otherwise it is just one more element that can be negative factor in one's wagering.

Joe.

[BigdaddyQH]

Having studied Kelly, I find it's not for me. Your issue of bayesian priors is spot-on. While I can estimate a range of my winning % based on over 2 decades of betting, it's only an estimate to be proven in the future. For this reason, I set the bankroll and then flatbet it at 2.5% of the original bankroll on each bet. I'm a high volume bettor playing over 200 bets in a 12 week NFL season starting at week 5. The other thing I don't like is that because I'm a one sport per year bettor, if I start badly, I can never catch up because the season is too short and the bets too small to build back quickly. I prefer to flat bet, at least I have a chance to break even. The best treatise on this in layman's terms is in Buchdahl who at the end of the explanation leaves it to the reader to make up their own mind.

Durito - I agree but respectfully disagree. At any given moment of time, it is efficient based on available information. It is not efficient in the larger time perspective. Witness the fact of what has happened in the market from the end of February to now. I followed my motto and sunk a ton of cash into the market at the end of Feb. It has almost doubled. The market has a bad perspective on the future depending on how it feels currently.

I wager as part of a group, and we wager the same way, with a few modifications. We believe in wagers that give us the biggest risk to reward ratio. This is why we wager middles. Now in order to be able to do such wagering, you must establish yourself at certain books in Vegas to be able to play the lead lines, and in order to establish yourself, you must wager a certain amount of money on each game. My group always wagers the same amount. We prefer playing fewer games, and wagering more on each game. We have a pre-set limit each year. Over a period of time, we have averaged about 57.5% winnings. This year will be much higher. We also have a pre-set of rules involving our winnings as far as how much goes to the bank, and how much gets re-investment. We only wager on football, under normal circumstances. That is as far as we go in regards to wagering policies. The rest of our time is spent on fine tuning our selection system. I think people can go overboard trying to figure out house cuts, odds, and the like. The more complex your system is, the tougher it is for you to be successful.

[Sawyer]

Kelly Criterion is not a good money management strategy in my opinion.

Row of Numbers (also known as Labouchere) and Flat Betting are good.

[roasthawg]

Kelly Criterion is not a good money management strategy in my opinion.

Row of Numbers (also known as Labouchere) and Flat Betting are good.

I don't know what row of numbers is but flat betting is a terrible strategy... you miss out on the compounding factor that way.

[byronbb]

Why is it so difficult to admit that a person with a million$ bankroll does not need to risk a high % of it the same way a person with a 10k bankroll would?

its not difficult. Its plainly obvious that to win an equal amount of money with a small BR vs a large BR, you have to take more risk. How that is good BR management for someone with a small roll escapes me entirely.

[reno cool]

It's good bankroll management because you want to give yourself a chance to make a substantial amount before expenses eat you up.