Kelly Capital Growth Investment Criterion

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1. kqrSep 2025
   Yet this article, like thousand others, don't go beyond binary decisions. Binary decisions are fine for many everyday decisions like figuring out whether to get insurance[1] but the Kelly criterion goes well beyond that[2] without changing the fundamentals: estimate a joint probability distribution of the outcome for each alternative, evaluate E(log X) using it, and pick the alternative for which it is highest.

   For a deeper introduction, I recommend the somewhat heavy Kelly Capital Growth Investment Criterion[3] which is a well-curated collection of papers on the Kelly criterion and its various uses.

   [1]: https://xkqr.org/insurance/?wealth=0&offered=0

   [2]: https://entropicthoughts.com/the-misunderstood-kelly-criteri...

   [3]: https://www.amazon.com/KELLY-CAPITAL-GROWTH-INVESTMENT-CRITE...

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2. kqrFeb 2022
   I've long found that Wikipedia article woefully lacking in generality.

   1) The Kelly criterion is a general decision rule not limited to bet sizing. Bet sizing is just a special case where you're choosing between actions that correspond to different bet sizes. The Kelly criterion works very well also for other actions, like whether to pursue project A or B, whether to get insurance or not, and indeed whether to sleep under a tree or on a rock.

   2) The Kelly criterion is not limited to what people would ordinarily think of as "wealth". It applies just as well to anything you can measure with some sort of utility where compounding makes sense.

   The best overview I've found so far is The Kelly Capital Growth Investment Criterion[1], which unfortunately is a thick collection of peer-reviewed science, so it's very detailed and heavy on the maths, too.

   [1]: https://www.amazon.com/KELLY-CAPITAL-GROWTH-INVESTMENT-CRITE...

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3. kqrFeb 2022
   And if you want to dig deeper, I'd follow up with The Kelly Capital Growth Investment Criterion. It's just a collection of peer-reviewed science on the Kelly criterion and various applications. Very dense reading, but also the best overview of the subject I've seen.

   https://www.amazon.com/Kelly-Capital-Growth-Investment-Crite...

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4. sl8rApr 2021
   I made a streamlit app about Kelly last year, showing how to bet when you have an "edge" over a toy market of coin flippers: https://kelly-streamlit.herokuapp.com/

   Other references I found interesting:

     - Cover and Thomas's "Elements of Information Theory" shows some interesting connections between Kelly betting and optimal message encoding.
     - Ed Thorp, the inventor of card counting, has a nice compendium of papers on this in "The Kelly Capital Growth Investment Criterion".

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5. kqrApr 2021
   And when you're done with that, the Kelly Capital Growth Investment Criterion is one of the better books I've read. But it's a much more advanced read.
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6. stopachkaDec 2019
   If interested, two books on this are great:

   “fortunes formula” for a more riveting story of thorp and Shannon

   “Kelly capital growth investment criterion” by Thorp, Maclean, William — for the more technical take

   I found this essay in this second book, and liked it so much I found the standalone pdf.

   It’s inspiring how approachable and human some of the best minds in the world were

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