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A bit of a definitional issue -- the interpretation is mostly wrong; the solution is the correct solution to *a* question but not to *the right question to be asking*

Dan Robinson

@danrobinson

Dec 2, 2020

Replying to

@SBF_FTX

and

@SBF_Alameda

What makes it the wrong question?

Replying to

It's trying to maximize EV[log(money)] instead of EV[money]. This is probably wrong in and of itself as an assumption to make. But if you *do* want to make that assumption, then e.g. you have to consider all of your assets that don't have anything to do with the pool.

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and

Do you disagree with the Kelly criterion in general? en.wikipedia.org/wiki/Kelly_cri

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and

If EV[portfolio1] > EV[portfolio2], then maybe EV[log(some weighted combination of cash and portfolio1)] > EV[log(portfolio2)], even if EV[log(portfolio2)] > EV[log(portfolio1)]?

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and

maybe this is roughly what

@SBF_Alameda

means by "Kelly only works if you consider *all* your money"?

Replying to

and

yeah roughly -- log is not a linear function so you can't ignore assets outside of the system you're examining and if you have other assets then the risk aversion goes way down

9:49 PM · Dec 2, 2020Twitter Web App

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