Work

The trade-off between growth and risk in Kelly’s gambling and beyond

Year: 2024

Type: article

Abstract: We study a generalization of Kelly’s horse model to situations where gambling on horses other than the winning horse does not lead to a complete loss of the investment. In such cases, the odds matrix is non-diagonal, which is particularly interesting for biological applications. We examine the trade-off between the mean growth rate and its asymptotic variance, an approximation for risk. Because the consequences of fluctuations around the average growth rate are asymmetric, we further explore a better alternative definition of risk: the extinction probability and its implications for Kelly gambling and the risk-return trade-off. We discuss some applications of these concepts in biology and ecology.

Source: Physica A Statistical Mechanics and its Applications

DOI: 10.1016/j.physa.2024.130316

Authors: S. Cavallero, A. Rousselot, R. Pugatch, L. Dinis, D. Lacoste

Institutions: Centre National de la Recherche Scientifique, Université Paris Sciences et Lettres, Gulliver, Ben-Gurion University of the Negev, Universidad Complutense de Madrid

Language: English

Topic: Complex Systems and Time Series Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,450