### Gambling to Optimize Expected Median Bankroll

Gambling to optimize your expected bankroll mean is extremely risky, as you wager your entire bankroll for any favorable gamble, making ruin almost inevitable. But what if, instead, we gambled not to maximize the expected bankroll mean, but the expected bankroll median?

Let the probability of winning a favorable bet be $$p$$, and the net odds be $$b$$. That is, if we wager $$1$$ unit and win, we get back $$b$$ units (in addition to our wager). Assume our betting strategy is to wager some fraction $$f$$ of our bankroll, hence $$0 \leq f \leq 1$$. By our assumption, our betting strategy is invariant with respect to the actual size of our bankroll, and so if we were to repeat this gamble $$n$$ times with the same $$p$$ and $$b$$, the strategy wouldn't change. It follows we may assume an initial bankroll of size $$1$$.

Let $$q = 1-p$$. Now, after $$n$$  such gambles our bankroll would have a binomial distribution with probability mass function $\Pr(k,n,p) = \binom{n}{k} p^k q^{n-k},$ where $$k$$ is the number of wins, $$n-k$$ the number of losses. Note the median occurs at $$k=n p$$, corresponding to a bankroll of $\left(1+f\cdot b\right)^{n p} \left(1-f\right)^{n q} .$ Now, maximizing this value is equivalent to maximizing its $$\log$$, which is $n p \log\left(1+f\cdot b\right) + n q\log\left(1-f\right) .$ But this is maximized when $p \log\left(1+f\cdot b\right) + q\log\left(1-f\right)$ is maximized, and this is precisely the condition for a Kelly optimal bet! It follows that if we gamble to optimize our expected median, this is equivalent to Kelly optimal betting, and hence maximizing expected log wealth.

With a little more work, we can show that the same conclusion holds if we gamble to optimize any expected quantile $$x$$, with $$0 < x < 1$$. Maximizing the expected quantile $$0$$ corresponds to "riskless" gambling, i.e. only gambling when there's no chance of a loss. Maximizing the expected quantile $$1$$ corresponds to maximizing the expected bankroll mean, which we can refer to as the "reckless" strategy. Thus, under our assumptions, there are only three quantile maximization strategies - riskless, Kelly and reckless.

### A Bayes' Solution to Monty Hall

For any problem involving conditional probabilities one of your greatest allies is Bayes' Theorem. Bayes' Theorem says that for two events A and B, the probability of A given B is related to the probability of B given A in a specific way.

Standard notation:

probability of A given B is written $$\Pr(A \mid B)$$
probability of B is written $$\Pr(B)$$

Bayes' Theorem:

Using the notation above, Bayes' Theorem can be written: $\Pr(A \mid B) = \frac{\Pr(B \mid A)\times \Pr(A)}{\Pr(B)}$Let's apply Bayes' Theorem to the Monty Hall problem. If you recall, we're told that behind three doors there are two goats and one car, all randomly placed. We initially choose a door, and then Monty, who knows what's behind the doors, always shows us a goat behind one of the remaining doors. He can always do this as there are two goats; if we chose the car initially, Monty picks one of the two doors with a goat behind it at random.

Assume we pick Door 1 and then Monty sho…

### Mixed Models in R - Bigger, Faster, Stronger

When you start doing more advanced sports analytics you'll eventually starting working with what are known as hierarchical, nested or mixed effects models. These are models that contain both fixed and random effects. There are multiple ways of defining fixed vs random random effects, but one way I find particularly useful is that random effects are being "predicted" rather than "estimated", and this in turn involves some "shrinkage" towards the mean.

Here's some R code for NCAA ice hockey power rankings using a nested Poisson model (which can be found in my hockey GitHub repository):
model <- gs ~ year+field+d_div+o_div+game_length+(1|offense)+(1|defense)+(1|game_id) fit <- glmer(model, data=g, verbose=TRUE, family=poisson(link=log) ) The fixed effects are year, field (home/away/neutral), d_div (NCAA division of the defense), o_div (NCAA division of the offense) and game_length (number of overtime periods); off…