Blackjack – Kelly Betting

It’s very important that you understand the logic of what statisticians call the Kelly Criterion, another mathematical concept discussed to death in many other blackjack texts. With Kelly betting, you cannot lose your entire bankroll. Never. Or, at least, that’s how it works in theory. The basic premise is that you always bet a percentage of your bankroll based on your percentage advantage over the house. Though somewhat oversimplified, a good example would be that if I have a 2% advantage on a blackjack hand based on my count, then I bet 2% of my bankroll. If I had a $10,000 bankroll, then I would make a $200 bet. The reason I would never go broke is because I can never place a final bet in which I put more than a small percentage of my bankroll at risk. If my bankroll gets smaller due to negative fluctuations, my bets will likewise get smaller in proportion. If I lose $5,000 of my original $10,000, then my Kelly bet with a 2% advantage becomes $100 instead of $200.

The theory behind Kelly betting is that not only does it prevent me from ever losing my whole bank, but since I increase my bets as my bankroll grows, I also maximize its growth by betting more when I can afford more risk. For instance, if my bankroll grows to $15,000,1 can bet $300 with a 2% advantage over the house.

This description of Kelly betting is oversimplified in order to clearly show its logic. But I do want you to understand the pitfalls of Kelly betting in a game like casino blackjack. First, consider what your ideal Kelly bet is on hands where the house has the edge…it’s zero. You shouldn’t bet at all on hands where the house has the edge over you or you violate the Kelly betting system—even in a game like the single-deck version in our example that would simply be impossible. In virtually all casino blackjack games, the house has the edge more than 50% of the time over card counters.

Second, the Kelly betting system is based on a theoretical fact that you can never go broke, since you always bet only a percentage of your current bankroll. But what if my $10,000 bankroll fluctuates downward to $100?