The Naval Podcast – Kelly Criterion: Avoid Ruin

Check out Naval’s Episode Page & Show Notes

This podcast clip is part of a conversation between Naval Ravikant and Babak Nivi. Unless otherwise noted, quotes are from Naval. For reference, check out Naval’s famous How to Get Rich tweet storm.

Key Takeaways

• The Kelly criterion is a mathematical formulation of a simple concept:
  • “Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble, just be very careful how much you bet each time so you don’t lose the whole kitty.”
• Similarly – Nassim Taleb talks about ergodicity
  • What does ergodicity mean? – What’s true for 100 people on average isn’t the same as one person averaging that same thing 100 times
  • As an example, if 6 people play Russian Roulette and each winner gets $1 billion – 1 person ends up dead and 5 people now have $1 billion
    • But 1 person who plays Russian Roulette with the same gun 6 times is never going to end up a billioare (on average)
• In business, people get ruined by cutting corners and doing the unethical/illegal
  • Having your reputation ruined is very much the same as getting wiped to 0