Death to Quarter-Kelly!

A look at dynamic betsizing

Bet sizing is the most underrated skill in gambling. The best bettors in the world are the ones who know when to size up and when to play it safe.

If you use Quarter-Kelly (QK) for everything you bet, you are leaving money on the table.

But, before we examine why a QK strategy for all bets is lacking, let's talk Kelly Criterion.

Kelly Criterion is THE bet sizing strategy in the industry. No math in these - but what you need to know is the following:

  • The goal of Kelly is to grow your bankroll at the highest possible pace without risking going broke

  • For Kelly to work, you need to know the true probability of an event happening

  • Kelly only operates in a realm of mathematical certainty

If you were to flip a fair coin, and got +110 odds - you could use Full Kelly as long as you are certain that the coin is fair.

And that is the crux of sizing - confidence!

Most people assume that you should only be scaling your bets as your edge increases. And this is true in the mathematically certain world of Kelly.

But the real world provides us with the challenge of never being certain. So we use quarter Kelly because QK sizing protects us against being wrong.

And this is good! We should always default to conservative sizing.

Where I diverge from Kelly though is in which situations I ramp up my sizing. Kelly wants your to ramp your sizing up when your price diverges from the book's price the most.

In theory - excellent

In practice - you go broke

You go broke because Kelly will have you bet the biggest when you are the most wrong. In my experience, showing a 20% edge on something just means I am wrong and I don't know why. In these situations, Kelly tells me to smash in huge bets. Luckily, I have found a much better sizing variable - validation.

Sports betting is a game of best guesses - it's impossible to know the true probability of the Steelers beating the Browns. But that doesn't mean you can't be more confident in one guess than another. Actionable confidence can only come from validation - not your gut.

How do you use confidence to make more money? You scale your Kelly % with your confidence that the edge you are showing is correct.

Some factors that would get you to increase your Kelly %

  • Line movement in your direction

  • Outlier price

  • Agreement w/ other models (your own or other people's)

  • Sportsbook is weak at this sport

  • You can define your edge and understand what mistake the sportsbook is making

A few examples:

  1. You like a bet at -110, and you see the line move from -110 to -120 at a respected sportsbook. Now, if you see -110 somewhere else - not only does your process show it as a bet, but you have market confirmation. Size up!

  2. You like a bet at -110, and only one sportsbook is offering -110. Every other book is offering -120+. Even if there isn't line movement, this increases the likelihood you are correct.

  3. You realize that a book is mispricing correlation because of some intricacy of the sport - this is a sign to size up.

Knowing when to leave the comfort of quarter Kelly is the skill that has made me the most money. But it took a while, and I am still building that skill. Leaving QK doesn't mean going full-Kelly also (although there are times to). Always air on the side of caution!

My recommendation is to start thinking about how confident you are in a number. How likely are you wrong? How likely are you wrong, but even if you're wrong the bet is still +EV?

Start asking yourself these questions and adjusting your Kelly % accordingly.

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