Understanding the Kelly Criterion

Edward O. Thorp

Chapter 36 in The Kelly Capital Growth Investment Criterion:Theory and Practice, 2011, pp 509-523 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In January 1961, I spoke at the annual meeting of the American Mathematical Society on “Fortune's Formula: The Game of Blackjack”. This announced the discovery of favorable card counting systems for blackjack. My 1962 book Beat the Dealer explained the detailed theory and practice. The ‘optimal’ way to bet in favorable situations was an important feature. In Beat the Dealer, I called this, naturally enough, “The Kelly gambling system”, since I learned about it from the 1956 paper by John L. Kelly (Claude Shannon, who refereed the Kelly paper, brought it to my attention in November of 1960). I have continued to use it successfully in gambling and in investing. Since 1966, I've called it “the Kelly Criterion”. The rising tide of theory about and practical use of the Kelly Criterion by several leading money managers received further impetus from William Poundstone's readable book about the Kelly Criterion, Fortune's Formula. (As this title came from that of my 1961 talk, I was asked to approve the use of the title) . At a value investor's conference held in Los Angeles in May, 2007, my son reported that ‘everyone’ said they were using the Kelly Criterion…

Keywords: Kelly Criterion; Dynamic Investment Analysis; Capital Growth Theory; Sports Betting; Hedge Fund Strategies; Speculative Investing; Fortune 's Formula (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814293501_0036 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814293501_0036 (text/html)
Ebook Access is available upon purchase.

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:wsi:wschap:9789814293501_0036

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().