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Navigating Uncertainty and Betting with an Edge
The chapter explores the challenges of predicting asset values in the market and stresses the importance of having a slight advantage in decision-making, likening it to placing bets in a casino with a slight edge. It delves into the concept of having an edge in betting using the Kelly criterion and discusses the impact of real-world constraints like transaction costs and slippage on implementing such strategies. The chapter also delves into market dynamics, explaining how supply and demand dynamics influence asset valuations and touches on the early success and financial strategies of the medallion fund.