Kelly Betting – How It Works and the Kelly Criterion Explained
Understanding the underlying math and its key components, such as probability, statistics, and expected value, is key to successful betting. That’s where betting strategies come into play, starting with the Kelly betting formula, aka the “scientific betting formula.”
Kelly Criterion gives you a roadmap to maximizing profits based on your bankroll and the value of your wagers in terms of edge and probability. This guide gives you a detailed explanation of the Kelly Criterion formula, examples of it, and instructions on how to use and modify it to make it work for your betting style.
What is Kelly Betting?Kelly Betting, or Kelly Criterion, is a mathematical formula developed by John L. Kelly Jr., a researcher at Bell Labs, that is used to determine the optimal size of bets to maximize long-term profits. In math terms, the formula stems from the concept of the expected logarithm of the return and should lead to the expected geometric rate of growth.
Essentially, this approach prioritizes the long-term growth of your bankroll over short-term gains, making it a robust strategy for consistent returns like no other. Unlike most other formulas, which were either developed for the stock market or other goals, the Kelly Criterion was first used for betting on horse racing in the 50s and then throughout the entire sports betting industry.
The core of this betting term is the Kelly Criterion formula: