Calculates the Kelly Bet, used to determine the optimal size of a series of bets.
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.
|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?
|6000/5000||b||1.20||Stores the b value.|
|3/5||p||0.60||Stores the p value.|
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.