Kelly criterion
The Kelly Criterion is a way of figuring out how much money you should spend on something in order to get the best chance to win. It's usually used in gambling or investments.
Essentially, you first figure out how likely it is that you'll win (this is called the "win probability"). Then you figure out how much money you can win if you do win (this is called the "prize"). Finally, you determine what "fraction" of your money you should bet.
So, if you think there's a 25% chance that you'll win, and you expect to get $4 for every $1 you bet, then you should bet 25% of your money. That means if you have $10, you should bet $2.50. That way, even if you don't win, you'll still have most of your money left.
The Kelly Criterion is a good way to decide how much to bet because it helps maximize the amount of money you can win while minimizing your losses. That way, you have a better shot at "winning big" without taking too much of a risk.
Essentially, you first figure out how likely it is that you'll win (this is called the "win probability"). Then you figure out how much money you can win if you do win (this is called the "prize"). Finally, you determine what "fraction" of your money you should bet.
So, if you think there's a 25% chance that you'll win, and you expect to get $4 for every $1 you bet, then you should bet 25% of your money. That means if you have $10, you should bet $2.50. That way, even if you don't win, you'll still have most of your money left.
The Kelly Criterion is a good way to decide how much to bet because it helps maximize the amount of money you can win while minimizing your losses. That way, you have a better shot at "winning big" without taking too much of a risk.
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