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Kelly criterion has nothing to do with the marginal utility you gain from more money, it's about the risk of ruin in an iterated game. And indeed, you can say
by nullc 13y ago
Kelly criterion has nothing to do with the marginal utility you gain from more money, it's about the risk of ruin in an iterated game.
And indeed, you can say that purchasing one ticket is a one-off event... but if you buy that one, why not every one that happens when the expectation is in your favor? Thus the risk of ruin becomes interesting to consider.
- jmharvey 13y agoThe Kelly criterion is designed to optimize the long term growth of your bankroll in an iterated game. And the strategy that optimizes your bankroll in an iterated game is the one that maximizes the expected value of the log of your bankroll after each iteration. Strictly speaking, the Kelly criterion isn't concerned with maximizing expected utility, but the math works out the same.