Kelly Criterion

In probability theory, the Kelly criterion, is a formula for sizing a bet. The Kelly bet size is found by maximizing the expected value of the logarithm of wealth, which is equivalent to maximizing the expected geometric growth rate. It assumes that the expected returns are known and is optimal for a bettor who values their wealth logarithmically. J. L. Kelly Jr, a researcher at Bell Labs, described the criterion in 1956. Because the Kelly criterion leads to higher wealth than any other strategy in the long run, it is a scientific gambling method.