The trade-off between growth and risk in Kelly’s gambling and beyond

S. Cavallero, A. Rousselot, R. Pugatch, L. Dinis and D. Lacoste

Physica A: Statistical Mechanics and its Applications, 2025, vol. 659, issue C

Abstract: We study a generalization of Kelly’s horse model to situations where gambling on horses other than the winning horse does not lead to a complete loss of the investment. In such cases, the odds matrix is non-diagonal, which is particularly interesting for biological applications. We examine the trade-off between the mean growth rate and its asymptotic variance, an approximation for risk. Because the consequences of fluctuations around the average growth rate are asymmetric, we further explore a better alternative definition of risk: the extinction probability and its implications for Kelly gambling and the risk-return trade-off. We discuss some applications of these concepts in biology and ecology.

Keywords: Bet-hedging; Information theory; Game theory; Optimization (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437124008264
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:659:y:2025:i:c:s0378437124008264

DOI: 10.1016/j.physa.2024.130316

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().