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#92 Ed Thorp and Claude Shannon
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Kelly's Criterion: The Philosophy of Risk
The Kelly criterion, also known as the Kelly formula or the Kelly Cartierian, is a mathematical formula that focuses on the philosophy of risk. It emphasizes that even unlikely events will eventually occur, and thus, individuals who accept small risks of losing everything will inevitably face substantial losses. This philosophy is crucial for investors, entrepreneurs, and individuals in general. The ultimate compound return rate is highly sensitive to unlikely events, often referred to as 'fat tails'. Many notable figures such as Shannon, Thorpe, Buffett, Munger, and Mark Spitz-Nagel are rumored to use and be familiar with Kelly's criterion. There is also a book written by Thorpe on this topic, which provides further insight into this fascinating concept.
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