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Optimal strategies for repeated games

Published online by Cambridge University Press:  01 July 2016

Mark Finkelstein  and
Robert Whitley
Mark Finkelstein*
Affiliation:
University of California, Irvine
Robert Whitley*
Affiliation:
University of California, Irvine
*
∗Postal address: Department of Mathematics, University of California, Irvine, CA 92717, U.S.A.
∗Postal address: Department of Mathematics, University of California, Irvine, CA 92717, U.S.A.
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Abstract

We extend the optimal strategy results of Kelly and Breiman and extend the class of random variables to which they apply from discrete to arbitrary random variables with expectations. Let Fn be the fortune obtained at the nth time period by using any given strategy and let Fn∗ be the fortune obtained by using the Kelly–Breiman strategy. We show (Theorem 1(i)) that Fn/Fn∗ is a supermartingale with E(Fn/Fn∗) ≤ 1 and, consequently, E(lim Fn/Fn∗) ≤ 1. This establishes one sense in which the Kelly–Breiman strategy is optimal. However, this criterion for ‘optimality’ is blunted by our result (Theorem 1(ii)) that E(Fn/Fn∗) = 1 for many strategies differing from the Kelly–Breiman strategy. This ambiguity is resolved, to some extent, by our result (Theorem 2) that Fn∗/Fn is a submartingale with E(Fn∗/Fn) ≤ 1 and E(lim Fn∗/Fn) ≤ 1; and E(Fn∗/Fn) = 1 if and only if at each time period j, 1 ≤ j ≤ n, the strategies leading to Fn and Fn∗ are ‘the same’.

Keywords

KELLY CRITERIONOPTIMAL STRATEGYFAVORABLE GAMEOPTIMAL GAMBLING SYSTEMPORTFOLIO SELECTIONCAPITAL GROWTH MODEL
Type
Research Article
Information
Advances in Applied Probability , Volume 13 , Issue 2 , June 1981 , pp. 415 - 428
Copyright
Copyright © Applied Probability Trust 1981 

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