Video Summary

The age-old question: how much should you be risking on each sports bet? The answer lies in the Kelly Criterion, a statistically proven strategy for optimal bankroll management. The Kelly Criterion considers two crucial factors: the expected value of a bet and the risk involved. Expected value is the probability of a bet winning, multiplied by the payout. A positive expected value means you can expect to make money in the long run, while a negative expected value means you'll lose money.

To calculate expected value, you multiply the chance of a bet winning by the payout, and then add the chance of the bet losing by the negative payout. For example, if you bet on a coin flip with a 60% chance of winning, the expected value would be 20% positive.

Now, let's talk about bankroll management. Aggressive betting can lead to quick losses, while conservative betting can miss out on potential profits. The Kelly Criterion provides a balance between the two, by calculating the optimal amount to bet based on the expected value and risk.

To demonstrate, let's simulate a coin flip with a 60% chance of winning. If we bet aggressively, we can expect to lose money in the short term, despite the positive expected value. On the other hand, if we bet conservatively, we may miss out on potential profits.

The Kelly Criterion takes into account both the expected value and risk, and provides a formula for determining the optimal amount to bet. The formula is simple: the number of units you want to risk is equal to the expected value divided by the payout, minus the expected value times the risk.

By applying the Kelly Criterion, sports bettors can make more informed decisions about how much to risk on each bet, and increase their chances of long-term profitability. Whether you're a seasoned bettor or just starting out, understanding the Kelly Criterion can help you make smarter, more strategic bets.