Finance tool 03 · The $25 coin experiment
The experiment
In a 2016 study, 61 finance students and professionals got $25 and a coin they were told lands heads 60% of the time, with winnings capped at $250. Only 21% reached the cap and 28% finished with under $2, despite having an edge on every flip. Over-betting and chasing losses did the damage.
The Kelly rule
For an even-money bet, the Kelly fraction is your edge: win chance minus lose chance. At 60/40 that is 20% of your current bankroll. It maximises how fast money compounds over many bets, and because you bet a fraction, you can never hit exactly zero.
Average vs typical
Betting everything each time has the highest average outcome, yet nearly every player busts: a handful of lucky survivors pull the average up. Real investors care about the typical path, which is what Kelly maximises. Half Kelly gives up a little growth for much smaller swings.