Kelly Betting on Horse Races with Uncertainty in Probability Estimates

Michael R. Metel ()
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Michael R. Metel: Laboratoire de Recherche en Informatique, Université Paris-Sud, Orsay, 91405 France

Decision Analysis, 2018, vol. 15, issue 1, 47-52

Abstract: We investigate the problem of gambling with uncertainty in outcome probabilities. Stochastic optimization models are proposed for optimal investing on events with mutually exclusive outcomes when probabilities are estimated using multinomial logistic regression. Special attention is given to the case of there being two outcomes and the general case of many outcomes. An empirical study using simulated data was conducted where the loss of return from probability estimation error was observed, and superior returns were achieved taking it into consideration.

Keywords: Kelly betting; optimization; uncertainty (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:15:y:2018:i:1:p:47-52

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