Why +EV isn't everything (points available)

[AlwaysDrawing]

Risk neutrality would surely be indicated by a Kelly multiplier of 1.

That aside, I am somewhat out of my comfort zone here. A degree of risk aversion (Kelly multipler <1) is understandable as it implies a desire to generate bankroll growth. The same could be said for Kelly multipler >1 upto the point where expected growth reaches zero. Above that level you are well into "risk seeking' territory and as you go toward infinity 'lunatic' is more appropriate.

So I come back to my previous question albeit worded differently. Can a single bet (or approach to risk if you prefer) that results in negative expected growth ever be described as "optimal"?

1. I don't think betting full Kelly is risk neutral, in the traditional sense of the word. Betting a large proportion of your wealth on a coin flip, even with the odds extremely in your favor, is not risk neutral. It may be optimal for bankroll growth, but there are opportunity costs to be considered (treasuries, stocks, bonds, other investments).

2. If your bookie is going to break your legs tomorrow unless you have $10k, and no less will do, and you have $5k in your pocket, then you should bet the Knicks and hope for the best. Go Melo Yellow!

(In reality, I don't know if it could be optimal to make a bet with negative expected growth, unless you are hedging another bet which has become much bigger than your standard Kelly stake, e.g. after winning 24 bets in a 25 team parlay, you may have effectively won $240,000, and wagering that amount on any bet no matter the edge would be overbetting your roll).

I'm interested in seeing the answer (also, this makes me want to read more about Kelly, specifically this book: The Kelly Capital Growth Investment Criterion )

Looking forward to seeing who gets the answer.

[bztips]

Risk neutrality would surely be indicated by a Kelly multiplier of 1.

Sorry, that's just wrong. Like I said, go back and read Ganchrow's post. Risk neutrality implies that you care ONLY about expected value, not expected growth. So it means that you would wager your entire bankroll on the event with the largest expected value. Needless to say, most people probably aren't risk neutral given this definition, but there's certainly nothing magical about setting the Kelly multiplier to 1 exactly -- yes, it maximizes expected bankroll growth (as defined), which is great IF that's what your goal is.

[135steward]

Dubins and Savage

I argued above that the maximum bet made the most sense in the OP example, much to the derision of Kelly bettors and other nervous gamblers. But Dubins and Savage show strong support for my answer. So, how does the optimality of bold play confirm or deny the Kelly approach?


(I got a new book: Ethier, The Doctrine of Chances; a must-read for any serious gambler, or even guys like me who simply want to know what we're getting in to. It reminded me of Dubins and Savage).

[RickySteve]

about gambling he said something like: gambling in itself was not something he was interested in, when invited to play table games (baccarat?) at the SBR bash (the rest is chinese whispers).

I've watched him gamble many times at a clear disadvantage. Baccarat is simply a horrible game.

[hels]

I argued above that the maximum bet made the most sense in the OP example, much to the derision of Kelly bettors and other nervous gamblers. But Dubins and Savage show strong support for my answer. So, how does the optimality of bold play confirm or deny the Kelly approach?


(I got a new book: Ethier, The Doctrine of Chances; a must-read for any serious gambler, or even guys like me who simply want to know what we're getting in to. It reminded me of Dubins and Savage).

Because the Kelly system assumes your bankroll is ALL of your assets. So if your net worth (money, home, car etc) is $100 000 (simple number) then 20% bet means you are betting $20 000.

So going all in means you are risking the full $100 000 which is why it is not a smart bet.

[RogueScholar]

Gamblers have a hard time answering this question truthfully because we're all degenerates that can't imagine making one and only one wager.

Nice to see you still place your foot in your mouth with such delicious reliability. Just because you're a degenerate doesn't make every other person who has ever placed a wager also a degenerate. Good grief...

[SpreadSniper]

Nice to see you still place your foot in your mouth with such delicious reliability. Just because you're a degenerate doesn't make every other person who has ever placed a wager also a degenerate. Good grief...

pipe down, degenerate