Everything You Need to Know About the Kelly Criterion

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The Kelly criterion is a betting tactic that is meant to equalise the ratio of risk and reward in a wagering strategy. At its core is the concept of setting the size of a stake so as to improve your results. It takes into account the effect long-term planning can have in a punter’s net winnings, that can often be the bettor’s achilles heel. The system, like any betting strategy, is not perfect. It’s predicated on the idea of making the same or similar bets over and over at structured intervals, and replicating conditions from one bet to another can often be challenging.

Applying the Kelly Criterion

The idea here is balancing out risk with reward. So, the size of a stake should in theory reflect the value of the bet along a straight gradient. Imagine there’s a bet with a 53% chance of success at a provided price of 3.0. The punter should therefore approach with a betting edge of 6% (53-47), with 47% being the chance of failure. A smaller edge could be, for example, 52% to win on odds of 3.0, therefore the stake should stand at 4% (52-48).

The Kelly Staking Formula Explained

The process pivots on calculating a stake size with balanced risks and rewards. In essence the formula is:

(xy-z)/x

In this:

• ● X is the decimal odds of an event -1.
• ● Y is the likelihood of success.
• ● Z is the likelihood of failure (which can be calculated through 1-y).

The Benefits of Employing the Kelly Criterion

The thought behind employing the Kelly criterion to your betting is to figure out the ideal size for a stake that would limit your vulnerability to losses whilst balancing out the potential gains on a successful bet. The size of potential winnings can seem small compared to throwing all your resources behind a wager, but the Kelly system is meant to increase your overall long term profit in increments. It takes the emotion out of betting somewhat, but deferring to a cohesive mathematical formula has its attractions. Indeed, for many bettors, the Kelly criterion could save them from themselves when it comes to making bets with a clear head. Seasoned punters may want to try this system to see if it can offset their losses and provide a framework within which to generate a gradual but reliable net profit with a view to playing the long game.

The Kelly Criterion: the Verdict

Because the Kelly criterion is a wagering strategy that takes the bettor’s larger bankroll into account, it provides significant means for limiting long term losses at the bookmakers. Where other betting systems look to pull punters ahead with increased profits, the Kelly criterion works on the basis of reducing losses, which can have just as great an effect on overall profits for the duration of a betting run, thanks to the consideration placed upon bet sizing. For those looking to shore up their bankrolls, this is an attractive method, and should not be dismissed off-hand in favour of betting strategies that simply dangle bigger winnings in front of players’ faces.