I’m still a bit confused about this point of the Kelly criterion. I thought that actually this is the way to maximize expected returns if you value money linearly, and the log term comes from compounding gains.
That the log utility assumption is actually a separate justification for the Kelly criterion that doesn’t take into account expected compounding returns
Is this true?
I’m still a bit confused about this point of the Kelly criterion. I thought that actually this is the way to maximize expected returns if you value money linearly, and the log term comes from compounding gains.
That the log utility assumption is actually a separate justification for the Kelly criterion that doesn’t take into account expected compounding returns
I’ve written about this here. Bottom line is, if you actually value money linearly (you don’t) you should not bet according to the Kelly criterion.