2 ms·
The formula for the Kelly criterion is f = p - q/b. If you plug in the odds of the recent record-setting mega millions draw, which was EV positive, f is 2E-9,
by tornato7 3y ago
The formula for the Kelly criterion is f = p - q/b.
If you plug in the odds of the recent record-setting mega millions draw, which was EV positive, f is 2E-9, which means it's Kelly-optimal to buy 1 ticket for every billion dollars of your net worth.
I don't think it's valid then to say it's rational for anyone with a net worth of $<1B.
- ozb 3y agoThat formula assumes that you always have investment opportunities with multiplicative returns. This is not true in practice for many people. To illustrate the difference, assume the following (simplistic) model: an agent has an income of $1000/period, minimum/subsistence spending of $998/period, and power-law "emergencies" that bankrupt you when you cannot afford to pay. Then the question is: what is more unlikely, a long-enough time without being bankrupted that you accumulate $10M (or even $100k), or winning a $10M jackpot?