Let's chat about the Kelly criterion.

The Kelly criterion is a very popularized mathematical formulation of a simple concept.

And the simple concept is don't risk everything.

Stay out of jail.

Don't bet everything on one big gamble.

Just be very careful how much you bet each time so you don't lose the whole kitty.

The Kelly criterion mathematically formulates if you're a gambler,

even when you have an edge, how much should you gamble per hand?

Because even when you have an edge, you can still lose.

So let's say you have 51, 49 edge.

Every gambler knows not to bet the whole kitty on that 51, 49 edge,

because you could just lose everything.

And you don't get to come back to the average.

Nassim Taleb famously talks about erudicity,

which is a fancy word for the simple concept that what is true for 100 people on average

isn't the same as one person averaging that same thing 100 times.

The easiest way to see that is by playing Russian roulette.

Six people who play Russian roulette once each,

and then each winner gets a billion dollars.

One person ends up dead.

Five people have a billion dollars versus one person who plays Russian roulette

with the same one gun six times is never going to end up a billionaire is going to end up worth zero.

...