In mathematics, specific criteria determine optimal resource allocation under conditions of uncertainty. These criteria involve maximizing the expected value of the logarithm of wealth, leading to long-term growth. For instance, in investment scenarios, this approach guides the proportion of capital to allocate to different assets, balancing risk and reward to maximize long-term returns.
This methodology offers significant advantages for long-term growth and risk management. By focusing on logarithmic utility, it avoids the pitfalls of ruin associated with excessive risk-taking while ensuring consistent portfolio appreciation. Developed by John L. Kelly Jr. in 1956, this framework has since become influential in fields like finance, gambling, and information theory, providing a robust approach to decision-making under uncertainty.
