Comment by aborsy
4 years ago
It’s worth mentioning that Kelly was an associate of Claude Shannon (the father of information theory) at Bell Labs. Kelly’s criterion is in fact based on Shannon’s theory.
It seems they developed the approach together. Shannon, his wife and Ed Thorp later went to Las Vegas gambling using this method, and apparently made some money.
If they made some money gambling in Vegas it was clearly not thanks to Kelly’s criterion, because Kelly’s criterion clearly (and correctly) states that the optimal bet in Vegas is zero dollar.
They played, among other things, blackjack. The rules of blackjack are such that the edge varies around zero. It's mostly a tiny bit negative, but sometimes creeps over zero and that's when you apply bigger than minimum bets, following the Kelly criterion.
And after Vegas Ed Thorp started a hedge fund and made even more money ;)