kelly criterion

[BillC]

The concept is a more precise version of the advice that one should forgo marginal +EV, high SD situatons. So for example if you have a longshot draw, you need slightly higher pot odds than dictated by pure EV. There are plenty of situations where this kicks in cleanly and the math is pretty clear. E.g. all-in situations where there are no implied odds. For draws with 1 or 2 outs, the effect is quite significant.

BillC

[AaronBrown]

Before Kelly, most people would have said that taking more risk increases your chance of both very good and very bad outcomes. From a conceptual point of view, the most valuable insight Kelly had is that is not true. More risk always increases your chance of very bad outcomes, but beyond a certain point it decreases your chance of very good outcomes as well. In that sense, the Kelly criterion gives the upper limit of risk anyone should consider. Beyond that point you lose more from the chance of going broke, and thereby missing out on future positive EV opportunities, than you can gain from bigger wins when you win.