Kelly Criterion — Optimal Bet Sizing The Kelly criterion is the mathematically optimal bet size that maximizes long-term geometric growth of capital. Developed by John Kelly at Bell Labs in 1956, it answers a precise question: given a known edge, what fraction of your bankroll should you risk to maximize the compounding rate? Core insight : Betting too small leaves growth on the table. Betting too large increases ruin risk and actually reduces long-term growth. Kelly finds the exact optimum between these extremes. Practical insight : You should almost never use full Kelly. Estimation error in…