Let's chat about the Kelly Criterion. The Kelly Criterion is a
very popular eyes mathematical formulation of a simple Concept in the simple concept is don't Risk Everything stay out of jail. Don't bet everything on one big gamble just be very careful how much you bet each time. So you don't lose the whole kitty the Kelly Criterion mathematically formulates. If you're a gambler, even when you have an edge, how much should you gamble per hand? Because even when you have an edge you can still lose. So let's say you have 5149 Edge every Gambler knows not to bet the whole kitty on that 5149 Edge because you could just lose everything and you don't get to come back to the average Nassim taleb famously talks about ergodicity, which is a fancy word for the simple concept that what is true for a hundred people on average isn't the same as one person averaging that same thing a hundred times the easiest way to see that is by playing Russian roulette six people who play Russian Roulette.
Once each and then each winner gets a billion dollars one person ends up dead five people have a billion
dollars versus one
person who plays Russian roulette with the same one gun 6 times is never going to end up a billionaire is going to end up with 0
and so
risk-taking, especially when the averages are calculated across large populations is not always rational the Kelly Criterion helps you
avoid ruin the number one way in which people get ruined in modern
business is not buy bedding too much but it's by cutting corners and doing unethical things or downright illegal things ending up in an orange jumpsuit in prison
or having a reputation ruined
is the same as getting wiped to 0 so never do those things.
