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Quick detour: expected value alone does not optimally maximize your long term outcome. Bet sizing (a la Kelly Criterion) is just as critical. E.g. if you had a
by beambot 4y ago
Quick detour: expected value alone does not optimally maximize your long term outcome. Bet sizing (a la Kelly Criterion) is just as critical.
E.g. if you had a weighted coin that was 50-50 odds with 3-to-1 payout, you wouldn't bet your whole bankroll on just one flip.
- jeffreyrogers 4y agoSBF said he disagrees with kelly bet sizing because his utility function is closer to linear: https://twitter.com/SBF_FTX/status/1337250702104485893 https://twitter.com/SBF_FTX/status/1337250702104485893
- beambot 4y agoI'm not sure I follow... SBF seems to be talking about the marginal utility of a dollar. True, most people think of this value as logarithmic. However, Kelly Criterion makes no such assumption: It's simply the optimal bet size (as a fraction of your bankroll) that optimally maximizes your returns over successive game plays. If you over-bet, it's much more likely that you'll blow-out -- as SBF mentions in your link (and ironically, occurred to SBF & FTX!).
- zen21 4y agoWhy would a weighted coin have 50-50 odds? That sounds like a fair coin, and miscalculated odds.