Posts Tagged ‘blackjack’
Blackjack – Avoid The Full-kelly Roller Coaster 2
June 18th, 2009
One of the most "amusing" stories I heard about a team betting full-Kelly occured back in the mid-1980s. A small group of investors put together a $200,000 bankroll, with a group of a dozen known and trusted players to take on the casinos of Nevada. All players were to bet full-Kelly, and the team would distribute the profits when they had doubled the bank. They estimated that it would take three to six weeks with the talent they had, and the number of hours the players should be able to play per week. The investors would get half the profit—$100,000—and the players would divvy up the other $100K, or about $8,500 per player. Sounded like a good plan…
After numerous ups and downs, with more downs than ups, the team hit a major downswing about three months into play. They had already gone twice as long as they were expected to go, but now the total bank remaining was only about $60,000. They had lost $140,000. The investors, all veteran players, took it in stride. They contacted the players and told them that $60,000 was simply not a big enough bankroll to front a dozen players. The investors were going to have to bite the bullet and put together a new bankroll; then they'd start over. So, they called in the remaining funds from the players.
But a funny thing happened…there were no remaining funds! Or, at least, there wasn't nearly the $60,000 there was supposed to be. All funds combined, the players had only about $11,000 in their possession! Where did the money go?
As it turned out, the players had all been taking informal "advances" on their expected $8,500 payday. Twelve players. Three months. They all had to live, eat, pay rent, buy gas…$49,000 had been dwindled away in the players' day-to-day living expenses. All the missing money, in fact, was accounted for. Each player knew how much he had advanced himself. An average draw of about $4,000 per player was not really that much money for three months living expenses. None of the players had been living high on the hog.
In fact, if this team had been betting quarter-Kelly, that $140,000 loss would have been a $35,000 loss. No big deal on a $200,000 bank. And the initial estimated time for doubling the bank would have been five to ten weeks, instead of three to six. Obviously, with this initial downswing, the team would not have made the estimated time schedule for doubling, but the fact is that even with the players taking their living-expense advances, they would have still had a substantial bankroll after three months, and a good chance of eventually hitting their goal.
If you bet half-Kelly, you cut your flux in half, but your win rate is still 75% of what it would be with full-Kelly betting. Better yet, with quarter-Kelly betting, you cut your flux to one-quarter of what it would be with full-Kelly betting, but your win rate is still 56% of the full-Kelly haul. If you've got a bankroll of $50K or better,
quarter-Kelly betting makes sense, but the problem with betting this way on a $10K bank is that the initial hourly expectation is so low you might consider getting a job that pays better to increase your bank before beginning your blackjack career. But on any size bank, I'd never advise betting greater than half-Kelly.
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Blackjack – Avoid The Full-kelly Roller Coaster
June 16th, 2009
Do not be lured by the "magic" of Kelly betting. Although, mathematically, full-Kelly betting appears to be the fastest way to increase a bankroll with no possibility of going broke, if you do not have a replenishable bankroll, full-Kelly betting causes HUGE fluctuations in the process of winning at the "fastest" rate. These fluctuations are absolutely intolerable in real-world games. And they're not tolerable for practical reasons, whether you think you have the stomach for them or not.
Unless you have a very large bank, a full-Kelly betting strategy will often dip your bankroll down to the brink of extinction. If you run a full-Kelly betting pattern on a computer simulation, no problem—your computer couldn't care less if your $10,000 bankroll goes down to $700 before turning around and climbing back up. Nor does your computer mind when your high bets go from $200 to $20, and then back up to $600. But for real-world players, full-Kelly betting is a bankroll roller coaster you'd rather not ride. It's the betting system that performs best on paper, not in real-world casinos.
For a player trying to make it as a pro on a small bankroll (say $10,000), full-Kelly betting is suicide. Players like the thought that with Kelly betting, "it's impossible to go broke." It's true that you can't lose your whole bank if you never bet more than a small fraction of it. But how can you continue playing when your high bets have to be reduced from $100 to $15 because your bankroll took a negative swing from $10,000 to $1500? Where are you going to find a casino that you can beat with $15 high bets?
Negative flux on full-Kelly betting has been the death of more would-be blackjack pros, and has spelled doom for more blackjack teams, than anything else. Talk to some of the old-timers who were playing back in the '70s and '80s when everyone was Kelly crazy. It was a common occurrence for a team to go broke, with one and all chanting: "But we were Kelly betting!" Betting full-Kelly, your winning streaks are way bigger, but your losing streaks are way grimmer. All of the successful big teams today have their players betting very small fractions of the "ideal" Kelly bets.
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