## Kelly Is a Framework, Not a Calculator
The Kelly Criterion gives mathematically optimal stakes given perfect probability estimates. In a real operation, probability estimates are uncertain, and the Kelly calculation must account for this uncertainty.
## Step 1: Produce Your Probability Estimate
Your model outputs a probability (e.g. 48% for home team to win).
**Important:** Is this estimate well-calibrated? If your model is known to produce overconfident estimates (common), apply a shrinkage factor before using in Kelly. A 15% shrinkage: 48% × 0.85 + 50% × 0.15 = 48.3% (minimal shrinkage in this case) — for strongly overconfident models, apply larger shrinkage.
## Step 2: Calculate Full Kelly Fraction
f* = (b × p − q) / b
Where b = decimal odds − 1, p = calibrated probability estimate, q = 1 − p.
## Step 3: Apply Fractional Kelly
Multiply by your chosen fraction (25–50% for most practitioners).
## Step 4: Apply Market-Specific Cap
Check the market cap from your bankroll management rules. The final stake is the lower of:
- Fractional Kelly stake
- Market-specific cap
- Maximum bet allowed by bookmaker/exchange
## Step 5: Round to Practical Unit
Real bets are placed in whole pounds or dollars. Round down (never up) to the nearest practical unit.
## Step 6: Log the Kelly Calculation
Record: full Kelly %, fraction used, final stake %. After 200+ bets, analyse whether your Kelly fractions are well-calibrated — are you over or under-betting relative to the optimal fraction given actual results?
## Automating Kelly Calculations
Build a spreadsheet that accepts: probability estimate, decimal odds, bankroll size, fraction choice, and cap. It returns the recommended stake. Run this for every bet before placing. This removes the temptation to deviate from the calculated stake.
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