Canonical · Decision-Making · Framework
The Casino's Four Gears: Edge, Volume, Sizing, and Bankroll
John Kelly Jr.; Edward Thorp · 1956
"A tiny, repeatable statistical edge becomes a near-certain profit only when combined with three other things — enormous volume, bets sized to the edge rather than to conviction, and a bankroll large enough to survive a bad stretch. Miss any one of the four and having an edge stops mattering."
American roulette pays 35-to-1 on a bet that wins 1-in-38 times, which works out to a 5.26% house edge — invisible on any single spin, but the entire casino industry runs on it.
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Expected Value
"Choose the option whose average outcome, weighted by probability, is highest."
Blaise Pascal · ModelContinue→