OK when i first looked into kelly vs FLAT STAKING in horse racing i was against kelly for the reasons stated in the other threads and not knowing how kelly actually worked, but thanks to Wamy Einehouse, AaronBrown, heehaww explaining it in detail, i realized mathematically using the Kelly Criterion is the optimal way to maximize the (betting bank).
This is a bit of a long post but trust me if you read it properly you might actually agree with me. Why i used the word properly is that i probably came across as clueless in the other threads not knowing much about kelly which i agree, so why would anyone bother reading more from someone that's clueless on kelly, but when it comes to pricing horses, well this is my field hence why i have some questions regarding kelly.
So since i have gone through some previous records of horse bets where i had a run of 9 horses losing in a row which is not often but standard also in horse racing, in which 8 of those started favorite and one second favorite, and all very heavily backed to win the race at jumping as the clear popular picks.
Now in Australia the bookmakers offer early fixed odds 2 to 3 days before the race, and in this excel example below you will see how wrong the bookmakers had it when first opening their early fixed odds to the public to bet on which i backed each of these runners
Here is a excel screen shot showing the 9 bets
but as i mentioned the 9 bets were without a collect
but to prove my point i also added.....had the 9 horse bets all won..... what would the kelly bank looked like along the way after 3 winners 4 winners etc when compared to a flat staking bank.
The starting bank for this example just to keep it simple is $1000
If you look under each staking method column you will see what each bank finished up after 9 run of outs HIGHLIGHTED IN THE RED COLOR at the bottom of each staking column.
Kelly Full went from 1000 bank to 177 = minus 83% of bank
Kelly 1/2 went from 1000 bank to 530 = minus 47% of bank
Kelly 1/4 went from 1000 bank to 700 = minus 30% of bank
And using the 2% Flat staking with no increase in bets, the flat stake bank went from 1000 to 820 = minus 18% of bank
REMEMBER the red is what the bank actually finished up for each staking method after 9 losing bets, but just for this example i entered the amounts had they 9 bets won instead
So the columns in order just in-case you don't understand them are...
Race number
Horse name
MyRatedPrice (price i assessed the horse according to my analysis)
Win % (probability of each horse winning according to my analysis)
Odds Backed (odds i backed the horse)
Finale odds (the finale odds that the horse started when jumping)
Kelly 1
Kelly 1/2
Kelly 1/4
2% Flat no increase in bets (betting 2% of 1000 starting bank and not increasing it over a few day period, instead just increasing the bets to bank ratio weekly basis)
Now i debated the point in the previous threads that horses unlike sports betting is a totally different ball game due to sports being a 1 on 1 >> team vs team bet, while horse racing there are 10 15 and 20 runners in a single race.
My point is Team vs Team means when giving each team a probability of winning, you only have to get 2 teams right compared to horses where you have to get a full field of 20 horses correct when assessing and assigning each of them their probability to win the race -- which means a lot more margin of error in setting a line for horse racing compared to sports.
So i was told to use fraction kelly instead in the previous threads
So for this example lets use kelly 1/4 only to keep it simple
Now Kelly 1/4 vs Flat staking shows that after a run of 9 outs the bank decreased by 30% while the flat staking bank by 18%
So again to keep it simple lets say Kelly staking lost double vs flat staking which would be standard given its the quickest way to build a bank so it will have bigger swings.
Now this is over 9 bets sample only so we could say over 1000s of bets...that if one was to use Kelly 1/4 they should use 2 x the bank vs flat staking given its more swingy.
So now we come to my point
So lets say had those 9 horses won instead
Using The kelly 1/4 bank, it would have went from 1000 to 2557
While the flat 2% staking bank would have went from 1000 to 1546 had they all won in a row
now kelly didn't double the profit of the flat staking
But even if we keep it real, even though 9 winners in a row is capable, but lets only use 5 winners in a row and you will see that kelly never is double ahead of flat staking throughout the 9 winning bets
So my point is and i will get to it, is that if your going to use kelly 1/4 compared to flat staking 2% you really need to use a smaller bankroll due to the higher variance with kelly ON HORSE RACING 2x or even 3x smaller bankrolls.
So if you do - than if you use a $1000 kelly bank you should be able to use double of $2000 bank for flat staking .....because of the lower variance that comes with it vs kelly 1/4 .....meaning kelly when compared to flat staking really should not be compared on equal bank dollar amounts like kelly $1000 bank vs flat staking $1000 given kelly is much more swingy with variance in horse racing.
sry for long post and bad English but would really be interested to see if what i am saying is correct or not?
Everyone will say that kelly is the quickest way to build a bank i know this, but it also comes with a higher variance.
which when compare to poker would be like playing .50/$1 where you could use 40 to 60 buy ins to play full time... but you would need 150 to 200 buy ins to play high stakes and likely more.
So the same applies with Kelly 1/4 vs flat staking. although kelly makes money quicker vs flat staking, you could flat stake double the amount of dollars and still have a lower variance while showing a greater profit.
Last edited by akakibreh; 01-27-2015 at 03:30 PM.