Betting Criterion Explained

Inexperienced bettors or those who are just about to dive into the betting waters often tend to confuse the very betting process for a gut feeling, a strike of luck and also misinterpret it for chance.

In reality, betting is all about mathematics and looking for logical explanations and backing behind any betting selection which, as such, has better chances of going through than an impulse bet.

In order to get good and successful at betting, one needs to determine:

  • Who to bet on?
  • What to bet on?
  • When to bet on?
  • Where to bet on?
  • Why to bet on?
  • How much to bet on?

A series of six questions listed above are concluded to be crucial for successful betting.

The most important aspect of this quandary is to determine how much to bet in order to stay in the clear and maximise the winning potential.

This is where Kelly criterion kicks in as one of few available formulas used to determine the optimal size of a bet. This particular criterion has first emerged at Bell Laboratories back in the 1950s when the aim was to figure out the best way to manage single-noise issues in long-distance telephone communications. It wasn’t too long, however, before the mathematicians that developed it realised that it can be adopted in gambling as well.

The Kelly criterion has been proved to be most reliable and trustworthy of all strategies in the long-run. In the nutshell, this betting criterion is used to calculate the proportion of the funds available to bet on an outcome of a game, race, event at odds that are higher than expected with an aim to have your betting budget grow exponentially.

Kelly criterion works under a formula with three variables: (BP – Q)/B with:

  • B = the decimal odds -1
  • P = the probability of success
  • Q = the probability of failure

The best possible way to describe the Kelly criterion is to do it through a coin toss.

Let us imagine that you are to bet on a coin to land on tails at the odds of 2.00 (1/1). If we were to assume that a coin is slightly biased and has a 52% chance to land up on tails then the Kelly criterion formula would work as follows:

P – 0.52
Q – 1-0.52 = 0.48
B – 2-1 = 1
Which types out in: (0.52x1 – 0.48) / 1 = 0.04

In this particular case the Kelly criterion would recommend you bet 4% in a positive percentage which indicates that your bankroll will hold an edge over this betting option which, ultimately, sees your funds grow in an ascending fashion.

The main advantage of the Kelly criterion in comparison to the likes of Arbitrage and the Fibonacci methods is that is involves lower risks.  However, it also includes some drawbacks as it assumes that you know the true outcome of an event, which on its own part requires precise calculation, often impossible to achieve.

In the end, whether you use Kelly criterion or some simple methods such as banking management and wagering plans is entirely up to your liking and preference, but the Kelly method can come quite handy when it comes to making sure you get it right and precise in defining your betting budget.

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