Mathematicians have been long looking into a way to balance both risk and reward in a scientific manner, and one of the results of this search was the so-called Kelly Criterion system. Also known as the Kelly Strategy or Kelly Bet, this system was created by John Larry Kelly Jr at Bell Labs in 1956, and is described as “a formula for sizing a sequence of bets by maximizing the long-term expected value of the logarithm of wealth.”
What does this mean, in layman’s terms? It’s admittedly a bit complicated, but it’s essentially a system with which to calculate how much of your bankroll you should bet according to specific variables. So continue reading as we’re going to tell you how to play online blackjack while using this formula!
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The Rules of the Kelly Criterion System
So, what’s the Kelly Criterion system? It’s a mathematical formula that is written as such:
f*= bp-q
—-----
b
Each of the symbols making this formula represents the following:
- f* is the fraction of your bankroll to bet
- b is the net odds received on the bet (expressed as b:1)
- p is the probability of winning
- q is the probability of losing (which is equal to 1-p)
Are you with us so far? Essentially the amount you should wager can be calculated by multiplying the odds by the probability of winning and subtracting the probability of a loss. This total is then divided by the odds. It does look complicated, but once you find the values for b, p, and q you can simply plug these in one of a number of Kelly formula calculators available online to work out the result.
Of course, the issue here is finding the values, especially for p or the probability of winning. In the case of blackjack the odds of winning a hand are calculated to be around 42.22%, but this depends on your strategy as well as the number of decks currently in use in the shoe, among other factors. Plus, as always remember that blackjack, like all gambling, is a game of as much luck as skill!
The Kelly Criterion System in Action
The Kelly Criterion System in Action
Now you’ll be using how to use the Kelly Criterion system in blackjack. First off, we have to note that this is a system for the serious players - you need to have a handle of blackjack strategy, and preferably know a spot of card counting while you’re at it. This is because, as you can see above, this is a very mathematical system that requires one to have an edge over the house. In fact, if you don’t have an edge then the result of the formula will always suggest that you should go ahead and simply stop betting.
With this in mind, let’s say you have the right strategy and card counting chops required to give yourself an edge. The experts say that this edge is around 1.5% over the house, at least depending on the current situation as it can fluctuate. As such for our calculation we’ll put our edge at a flat 1%. According to the formula, with a 1% edge you can bet up to 20% of your bankroll. However you’ll need to recalculate your edge with each hand, before once again plugging the value of your edge in the formula to figure out how much you should bet on any given hand. It’s indeed complicated, but can be worth it if one has the knack for such mathematics!
Half, Third, or Quarter Kelly?
To further minimise your risk when betting, some experts suggest that you bet a fraction of what the Kelly Criterion formula suggests. This is the Half, Third, or Quarter Kelly where you, yes, bet half, third, or quarter of the formula’s result. The use of this Fractional Kelly system reduces the volatility inherent to your gambling, since you’ll be making smaller bets and, as a result, risking less cash should you lose. Such an approach is also perfect for those who want to find a sweet spot between win potential and bankroll protection.
The Pros and Cons of the Kelly Criterion System
The Pros and Cons of the Kelly Criterion System
The Kelly Criterion is a high-level system, which means its positives and negatives are of a similarly high level. Let’s take a look at these:
|
Kelly Criterion Pros |
Kelly Criterion Cons |
|
Guides towards the optimal amount to bet |
It’s challenging to use at the best of times |
|
Emphasises risk management |
Requires you to be a high-level player who can eke out an edge against the house |
|
Focuses on the long term with cautious play |
The calculations are complex to say the least! |
What to Keep in Mind When Playing with the Kelly Criterion System
The Kelly Criterion is one of the most sophisticated gambling systems out there. In fact it found great use in the stock market, where it allows traders to calculate the amount they should invest on any given stock. That said, as everything in life your chances of winning a game of blackjack cannot be dictated by any formula. Luck always comes into play, which is why you should play responsibly. Here this formula is useful, as it helps you manage your bankroll, but never chase your losses even when playing with the Kelly Criterion or any other betting system. With this in mind do let us know if it works out for you when playing any of the best online blackjack sites!
