As far as I can tell, the term “Shannon’s demon” is fairly recently made up. I learned this as the Kelly criterion. Here’s the original paper: https://www.pr

As far as I can tell, the term “Shannon’s demon” is fairly recently made up. I learned this as the Kelly criterion. Here’s the original paper: https://www.princeton.edu/~wbialek/rome/refs/kelly_56.pdf https://www.princeton.edu/~wbialek/rome/refs/kelly_56.pdf To “Shannon’s demon’s” credit, the first word of that paper is Shannon, but that’s about it. Kelly and Shannon were different people, and the paper makes no mention of demons. This also has nothing to do with making returns out of thin air. It’s about how to avoid losing your returns by betting too much at once, and how to optimally choose the size of a bet.