what is the kelly criterion 
the kelly criterion is a formula used to determine the optimal size of a bet when the expected returns are known according to the formula the optimal bet is determined by the formulak w 1 w r where k is a percentage of the bettor s bankroll w is the probability of a favorable return and r is the ratio of average wins to average losses who created the kelly criteria the kelly criteria was originally created by john kelly while working at at t s bell laboratories it was first adopted by gamblers to determine how much to bet on horse races and later adapted by some investors 