Kelly Criterion
The Kelly Criterion is a mathematical formula developed by Bell Labs scientist John L. Kelly Jr. in 1956 that calculates the optimal fraction of a bankroll to bet on a favorable wager in order to maximize the long-run growth rate of wealth. It is widely used by professional gamblers and quantitative investors as a position-sizing rule. The full Kelly allocation maximizes expected logarithmic utility; fractional Kelly (typically 25–50% of full Kelly) is preferred in practice to reduce volatility while preserving most of the growth advantage.