Mobsters, mathematicians and economists
I found this to be a very exciting and informative book.Once I started, I was hooked: I couldn't put it down because I wanted to learn more -- not just about the formula but all the intellectual controversy surrounding it and the cast of characters involved. This book tells the story of the 'Kelly criterion' and how certain people used it to beat the casinos and earn consistently above-average returns in the stock market.The cast of characters extend from famous organized crime figures (Bugsy, Longy Zwillman, etc.) to Claude Shannon, father of information theory, to Milken, the junk bond king, and many more. You can view this book as a study on the history of an idea, as a study of the financial markets, or as a social study of gambling and investing. There are many faces to it. I wouldn't say it is a book on finance, or a book on history, but a bit of everyhting really. It definitely is not a book on 'how to beat the market', don't look for that here. The book does give a good explanation of the Kelly formula, in my opinion, but the whole controversy surrounding it, as well as the story of Ed Thorpe, was much more interesting for me. If you are interested in finance or financial history, math, or gambling, or how ideas evolve and why certain ideas are better known than others, you should read this book. I think that mathematically sophisticated readers can be a bit disappointed because there is no rigorous treatment of Kelly criterion. But the basic ideas of CAPM, efficient markets hypothesis, the essence of Kelly formula, and random walk, are explained quite succintly and clearly, in my opinion. The only problem I had with the book was that the author went off in tangents quite a bit, which sometimes distracted from the main story. For instance, right after the description of Kelly formula, there is a discussion of Edgar Hoover's horseracing bets. It seems that the author had a lot of material, may be too much, that he did not want to cut, but also did not know where to put. That detracted from coherence somewhat, which is why I am giving this 4 stars. But at the end of the day, I am feeling better for having read the book -- I learned a lot, and it was an easy and interesting read. Definitely worth the money and time.
Poundstone is simply always excellent
The combination of William Poundstone covering Edward Thorpe is irresistible, and this work merits five stars alone simply for the gravitational attraction of two such luminaries in orbit with each other. But this is an excellent work deserving of five stars, as are all Poundstone's books (I have Poundstone and his "Prisoner's Dilemma" to thank for awakening in me the possibility of game theory applied to Finance). Poundstone is one of those rare authors, like John Derbyshire, author of "Prime Obsession," who is gifted in two cognitive hemispheres: both left brain and right brain. His prose is deft, clear, and engaging. But his explication of mathematical concepts in prose is his strength, and it is in full force in "Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street." For anyone who has had to wade through a badly written treatise on a mathematical subject we can only beg Poundstone with the cries of the truly damaged "please write math textbooks!" such is the level of his clarity. But the subject matter of the intersection of mathematics, gambling, information theory, and finance itself is truly compelling: for this is the book that Poundstone was born to write. All the greats are here: Louise Bachelier, Edward Thorpe, Claude Shannon, Robert Merton, Fischer Black and Myron Scholes, and of course John Kelly. Even the Michael Milken enters stage left as a boogey man/Fagin, and Thorpe's troubles with Milken only heap more scorn on Milken's deservedly reprehensible reputation. Sadly, an examination of Elwyn Berlekamp is absent from this book, as are several other minor players in the math/fin pioneering days. With "Fortune's Formula" Poundstone once again establishes himself as a leading writer on popular mathematics. I would be hard pressed to choose between William Poundstone and John Derbyshire who would be better to write the story of James Simons and Renaissance Technologies, but after "Fortune's Formula" I'd bet on Poundstone.
A history of its development, critical assessment of its pitfalls, and how it can be applied
Is there really a scientific-based system of betting which can beat both casino and Wall Street odds? For decades investors, scientists and even mobsters have used the Kelly formula to make fortunes: it was discovered in 1956 at Bell Labs by a mathematician and is almost foolproof for the few who understand how it works. Now you can join these few with Fortune's Formula: The Untold Story Of The Scientific Betting System That Beat The Casinos And Wall Street: stories of those who've successfully benefited from the Kelly formula accompany a history of its development, critical assessment of its pitfalls, and how it can be applied.
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