Bob discusses the famous Kelly criterion, which is a rule for capital management relevant in both gambling and investing. Bob explains the appeal of the Kelly criterion but also details how professional economists have disputed its importance. Bob illustrates the points with references to his high school Blackjack days.
Mentioned in the Episode and Other Links of Interest:
- Kelly’s original 1956 paper laying out his optimal bet sizing rule.
- A professor’s notes linking to three separate articles from 1979 in which Paul Samuelson and two others battled over the optimality of the Kelly criterion (which is equivalent to maximizing the expectation of the geometric mean of outcomes).
- The Blackjack book where high school Bob was first exposed to the Kelly criterion: The World’s Greatest Blackjack Book. #CommissionsEarned (As an Amazon Associate I earn from qualifying purchases.)
- Help support the Bob Murphy Show.
The audio production for this episode was provided by Podsworth Media.