Das Kelly Kriterium

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The Kelly Criterion was developed in 1956 by the scientific researcher JL Kelly and is one of the most famous betting strategies in the world. It enables the maximization of all potential profits from a bet or an investment and can be used in all types of sports betting . It is therefore not surprising that it is often used even in the financial sector. Despite a relatively high level of complexity in its application and a certain degree of risk, the criterion is extremely popular with competitive players.

Was genau ist das Kelly Kriterium?

The Kelly criterion is a simple mathematical formula that helps to have ideal bankroll management . It determines the perfect stake for a specific bet by taking into account the expected return on the bet and the size of the betting account.

At first it sounds relatively straightforward, but as is so often the case in life, the whole thing turns out to be more complicated. A rule of thumb for the Kelly criterion is that the higher the expected return, the higher the stake should be in order to maximize potential profits. In order to apply the principle perfectly, you must therefore be able to accurately assess the chances of success of each bet.

Why is the Kelly Criterion formula used in sports betting?

Was ist damit gemeint?

In order to explain the Kelly criterion as best as possible, we assume that you are able to estimate the chances of success of a bet relatively well. Only then is the Kelly criterion able to determine the ideal stake for a bet by using the following mathematical formula:

(b * p – q) / b = f

In this formula ‘b’ stands for the decimal odds of a MINUS one bet. For  example, if the decimal odds for a bet are 4.0, then ‘b’ would be 3. The letters ‘p’ and ‘q’ are more difficult to find and represent the prospect of winning or losing a bet . Assuming your bet has a 55% chance of success, then ‘p’ would be 0.55 and ‘q’ would be 0.45. Last but not least, the ‘f’. It is the solution to the equation and indicates what percentage of a betting account should be staked.

Let’s take a look at an example to make it all clearer. Let’s stick to the decimal rate of 4.0 and assume the chance of success is 35%. If we take this data and enter it into the formula, the result is the following:

((3 * 0.35) -0.65) / 3 = 0.13

The Kelly criterion tells you that you should only wager 13% of your betting account on this bet. If you change the chances of success, the percentage also changes. As you can see, the effectiveness of the criterion depends heavily on your own assessment.

kelly criterion equation

Die Bedeutung von „Value“

The Kelly criterion can also be used to determine the expected value of a bet, the so-called “value”. Value is an essential part of sports betting. Put simply, a bet has good value if the probability of winning the bet is higher than the implied probability of the existing odds.

For example, let’s say you see a bet with decimal odds of 4.0. The implied probability of winning this bet is 25% or 0.25. If you think the real probability is greater than 25%, you have found a bet with good value.

In our example, the Kelly criterion formula leads to a positive equation solution. This tells you that you have identified a bet with a positive expected value. Had the equation solution been negative, you would be dealing with a bet with no good value. In other words, Kelly’s criterion advises against negative expected value bets. Anyone who wants to be successful with sports betting cannot afford to bet on bets with poor value. The Kelly Criterion will help you keep your hands off such bets and will inevitably make you a more successful player.

odds and probabilities

Vorzüge

The greatest benefit of the Kelly Criterion is the balance between risk and security. It enables bettors to top up their betting account more effectively and to protect it from excessive losses. By adjusting the size of the bet according to the expected value, the chances of success increase in the long term. Those players who are able to estimate the probability of a bet well can use the Kelly criterion to make the best use of their skills.

Another advantage of the Kelly criterion is that it is relatively easy to use. Anyone who has used the formula a few times can internalize it quickly and use it without looking. There are also some Kelly criterion calculators on the Internet that make your work even easier. The system also helps identify bets with poor value. If the result of the arithmetic problem is negative, you should stay away from the bet.

kelly criterion advantages

Mankos

The Kelly criterion not only has advantages, but also two major shortcomings. The first is the reliance on your personal estimates of the probabilities. If you are wrong, the entire formula becomes unusable and advises you to either use too much or too little of your betting account.

The second disadvantage is less obvious, but just as serious. The system is designed to be extremely aggressive. Depending on which numbers are entered in the formula, the criterion can suggest using a relatively high percentage of your betting account. Some very successful bettors never bet more than 5% of your account, regardless of what the formula says. It is therefore not uncommon for the suggested percentage of players to be halved or even only 25% of the stated value to be used. In this way, the betting account is more protected and successive, incorrect assessments of probabilities are easier to cope with.

Kelly Criterion disadvantages

Fazit

The Kelly criterion is based on a rock solid mathematical approach and offers several advantages. For those of you who are good at determining odds, it offers a dynamic way to increase profits. However, it is important to understand that this is a pure deployment system. It is incapable of discovering bets with good value on its own and is therefore not an automatic path to success. It all depends on how well you can judge things for yourself. It should therefore be used with caution, especially if you have had little experience with betting.