Kelly Criterion – how to calculate optimal bet sizes
I wonder how professional gamblers approach bet sizing. It seems to me that for most applications the Kelly Criterion is not the right choice. The utility of money is asymmetric; gaining $25000 is worse than not losing $25000. Relatedly, most actual gamblers want to ensure good returns while not going broke, so minimizing risk of ruin is often more important than maximizing return rate. Further complicating the matter is that in real life you don't know your actual probability of success, but you may have an estimation. And finally, though this is less commonly significant, your rate of return in a given game might depend on your the amount you bet.<p>From what I've seen in the poker community, no one has really approached this type of bet sizing from a rigorous perspective beyond the relatively simple Kelly Criterion.