In arithmetic, particular standards decide optimum useful resource allocation underneath situations of uncertainty. These standards contain maximizing the anticipated worth of the logarithm of wealth, resulting in long-term development. As an example, in funding situations, this method guides the proportion of capital to allocate to completely different belongings, balancing threat and reward to maximise long-term returns.
This system affords important benefits for long-term development and threat administration. By specializing in logarithmic utility, it avoids the pitfalls of damage related to extreme risk-taking whereas making certain constant portfolio appreciation. Developed by John L. Kelly Jr. in 1956, this framework has since turn out to be influential in fields like finance, playing, and data principle, offering a sturdy method to decision-making underneath uncertainty.
