Kelly betting or proportional betting is an application of information theory to investing and gambling. Its discoverer was John Larry Kelly Jr..
Part of Kelly's insight was to have the gambler maximize the expectation of the logarithm of his capital, rather than the expected profit from each bet. This is important, since in the latter case, one would be led to gamble all he had when presented with a favorable bet, and if he lost, would have no capital with which to place subsequent bets. Kelly realized that it was the logarithm of the gambler's capital which is additive in sequential bets, and "to which the law of large numbers applies."
Read more about this topic: Gambling And Information Theory
Famous quotes containing the word betting:
“All voting is a sort of gaming, like checkers or backgammon, with a slight moral tinge to it, a playing with right and wrong, with moral questions; and betting naturally accompanies it. The character of the voters is not staked. I cast my vote, perchance, as I think right; but I am not vitally concerned that right should prevail. I am willing to leave it to the majority.”
—Henry David Thoreau (1817–1862)