What do you mean when you say you’re “willing to bet according to the Kelly Criterion”? If you’re proposing a bet with 99% odds and your actual belief that you’ll win the bet is also 99%, then the Kelly Criterion would advise against betting (since the EV of such a bet would be zero, i.e. merely neutral).
Perhaps you mean that the other person should come up with the odds, and then you’ll determine your bet amount using the Kelly criterion, assuming a 99% probability of winning for yourself.
Most bets I see are on the order of $10-$1000 which, according to the Kelly Criterion, implies negligible confidence. I’m willing to bet substantially more than that.
If we had a real prediction market with proper derivatives, low fees, high liquidity, reputable oracles, etcetera, then I’d just use the standard exchange, but we don’t. Consequently, market friction vastly outweighs actual probabilities in importance.
Perhaps you mean that the other person should come up with the odds, and then you’ll determine your bet amount using the Kelly criterion, assuming a 99% probability of winning for yourself.
Bingo. This is exactly what I mean. Thank you for clarifying. It is important to note that “probability of winning” is not the same as “probability of getting paid, and thus profiting”. It’s the latter that I care about.
But if that’s the case, he could simply mention the amount he’s willing to bet. The phrasing kinda suggested to me that he doesn’t have all the info needed to do the Kelly calculation yet.
What do you mean when you say you’re “willing to bet according to the Kelly Criterion”? If you’re proposing a bet with 99% odds and your actual belief that you’ll win the bet is also 99%, then the Kelly Criterion would advise against betting (since the EV of such a bet would be zero, i.e. merely neutral).
Perhaps you mean that the other person should come up with the odds, and then you’ll determine your bet amount using the Kelly criterion, assuming a 99% probability of winning for yourself.
Most bets I see are on the order of $10-$1000 which, according to the Kelly Criterion, implies negligible confidence. I’m willing to bet substantially more than that.
If we had a real prediction market with proper derivatives, low fees, high liquidity, reputable oracles, etcetera, then I’d just use the standard exchange, but we don’t. Consequently, market friction vastly outweighs actual probabilities in importance.
Bingo. This is exactly what I mean. Thank you for clarifying. It is important to note that “probability of winning” is not the same as “probability of getting paid, and thus profiting”. It’s the latter that I care about.
Obviously he thinks the chances are lower than 1% that this is true, if he’s willing to bet at 99% odds.
But if that’s the case, he could simply mention the amount he’s willing to bet. The phrasing kinda suggested to me that he doesn’t have all the info needed to do the Kelly calculation yet.
Bayesed is correct. There’s a whole bunch of factors which affect whether a bet is worthwhile.