Kelly Criterion Explained for Bettors, and Why Arbitrage Bettors Can Skip It

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The Kelly criterion gives the bankroll fraction that maximises long-run growth, calculated as edge divided by net odds, and it depends on an accurate win probability. The article notes the method is fragile, since a simulation with a true 20% edge still produced a median worst drawdown of 90% under full Kelly. It explains that arbitrage bettors do not need the criterion because a surebet carries no outcome variance to size against. Historical context is provided: the rule was described by John L. Kelly Jr. at Bell Labs in 1956 and later applied to blackjack and stock markets by Edward Thorp. The piece also references a 2016 study by Haghani and Dewey, in which a coin-flip betting task showed that many participants went bust, and includes TypeScript and Python code plus a Monte Carlo comparison of half, full and double Kelly staking.

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