Calculates the Kelly Bet, used to determine the optimal size of a series of bets.
Formula: (prob*(odds+1)-1)/odds
p: The probability of success.
b: the net odds received on the wager ("b to 1")
Calculate the Kelly Bet for a bet of even odds with a 0.55 probability of success.
Value | Keystrokes | Display | Description |
---|---|---|---|
1 | b | 1.00 | Stores the b value. |
.55 | p | 0.55 | Stores the p value. |
kb | 0.10 | Calculates the kb value. |
Bet 0.10 of your bankroll
A contestant on a game show just picked a card and won $5,000.
He has the option to pick from the remaining 5 cards.
2 of the cards are "lose everything".
The other 3 cards average $6,000 on top of the $5,000.
Should he risk the $5,000?
Value | Keystrokes | Display | Description |
---|---|---|---|
6000/5000 | b | 1.20 | Stores the b value. |
3/5 | p | 0.60 | Stores the p value. |
kb | 0.27 | Calculates kb. |
So, the $5,000 would represent 0.27 of his "bankroll".
5000/.27 = $18,750. That is a pretty big bankroll.
The contestant I saw decided to keep his $5,000 since, like most of us, he didn't have an $18,750 "bankroll". So even though this wager had a positive expected value, $5,000 was too much for him to risk.
Reference: