Kelly Criterion Betting Bankroll Management
Kelly Criterion's model is based on a mathematical formula developed by this author in the mid-1950s. In sports betting, this formula is used to decide the optimal amount of money to place in a bet. When we bet the amount that this formula indicates, we say that we are using the full Kelly Criterion. Many bettors prefer to use amounts less than or proportional to those indicated by this method. In such cases, we would say that we are using a fractional Kelly Criterion.
How The Full Kelly Criterion Works
Kelly's formula tells us the following:
Amount to bet = (Winning Probability) X (odds - 1) / (odds - 1)
Here we express the probability value on the scale from zero to one. Suppose that Valencia will win at home against Getafe and that you have estimated that Valencia has a 55% winning chance. This implies a 45% probability that there will be a draw or that Getafe will win. In the latter case, of course, you would lose your bet. The bookmaker offers 1.85 odds for Valencia's victory. If we introduce the data to the formula, we would have:
(0.55 x 1.85 - 1) / (1.85 - 1) = 0.020
Therefore, applying Kelly's criteria, you should bet in favor of Valencia 2.0% of your bankroll. Many believe that Kelly's strategy is the best system for bankroll management. In theory, this may be true; however, there are situations where it will not lead to success.
Advantages And Disadvantages Of The Full Kelly Criterion
Kelly Criterion Advantages
The most important advantage is that it helps the bettor find the correct balance between risk and safety. In other words, between growing the betting bankroll and protecting it. By increasing the bet size in proportion to the expected value, you are maximizing your advantage. Besides, this method suits perfectly those who know how to calculate a sports result probability. Another advantage is that the system is relatively easy to use. Once you have done these calculations a few times, it becomes familiar. Also, there are a variety of free Kelly Criterion calculators online.
Kelly Criterion Disadvantages
It depends on your ability to accurately calculate each event occurring probability. If your calculations are not accurate, the formula will cause you to misuse your bankroll. You may incur high losses as the system can lead the bettor to use significant budget fractions. It raises problems if you bet on several games at the same time. If you use this criterion in many bets, the total amount to bet may approach or exceed 100% of your bankroll. In that case, you would have to adjust the betting percentages that the formula gives you.
Conclusion
In short, the full Kelly Criterion can lead you to maximize your betting winnings. This will depend on the advantage you can find in the odds. It can also help reduce both losses and bankruptcy possibility. On the other hand, it is an aggressive system that can make the bettor use high proportions of his budget.
