Optimal Betting Strategy with Uncertain Payout and Opportunity Limits

13 Pages Posted: 7 Apr 2017

See all articles by Aaron Brown

Aaron Brown

New York University (NYU) - Courant Institute of Mathematical Sciences; AQR Capital Management, LLC

Date Written: December 8, 2016

Abstract

This paper was inspired by "Rational Decision-Making Under Uncertainty: Observed Betting Patterns on a Biased Coin" (Haghani, Victor and Dewey, Richard, https://ssrn.com/abstract=2856963). It derives optimal strategy for a game with known payouts and probability, but uncertain limits on total payout and number of betting opportunities. It further develops some general gambling principles applicable to practical risk taking situations in which all parameters are uncertain and robust approximate simple solutions are required.

Keywords: Kelly criterion, gambling, betting, optimal strategy, risk, uncertainty

JEL Classification: C61, D01, C73, D81

Suggested Citation

Brown, Aaron, Optimal Betting Strategy with Uncertain Payout and Opportunity Limits (December 8, 2016). Available at SSRN: https://ssrn.com/abstract=2947863 or http://dx.doi.org/10.2139/ssrn.2947863

Aaron Brown (Contact Author)

New York University (NYU) - Courant Institute of Mathematical Sciences ( email )

New York University
New York, NY 10012
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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