Comment by CodesInChaos
4 years ago
For people who earn a wage and don't just make money by investing, the Kelly Criterion can't be applied in its basic form, since it means your capital gain has both constant and linear components, instead of just being linear as the formula assumes, which complicates matters a lot.
Plus for low probability high reward bets you have the additional complication that you probably can't make them often enough to get a decent chance of hitting the jackpot.
For people who expect to have stable earnings with the current interest rates being below the real inflation the Kelly optimal strategy is to be in debt use it to finance investments (of course this works only if the future earnings are really stable).
As a business example startups are starting to apply for loans against their future subscription earnings to reinvest in their companies. Debt against your salary is the personal version of the same strategy.