Edward Thorp, The Man Who Beat The Odds

Edward Thorp is an American mathematician who proved his ideas by making money with them. He was born on 14 August 1932 and took his doctorate in functional analysis at UCLA in 1958. He taught at the Massachusetts Institute of Technology, worked out how to beat blackjack, and built what is widely regarded as the first wearable computer with Claude Shannon. Then he ran one of the earliest quantitative hedge funds. One question runs through all of it. It is not whether to bet, but how much to bet once you know the size of your advantage. The answer he helped make rigorous is the Kelly criterion, a formula that sets the stake which compounds money fastest and warns that anything larger ends in ruin. Thorp turned information theory into a betting method. He applied the Kelly criterion, derived by John Kelly from Shannon’s work, to blackjack and then to financial markets. He built the first wearable computer with Claude Shannon. The 1961 device predicted roulette outcomes, and Shannon is the same figure whose theory is the basis of quantum information. Beat the Dealer proved blackjack could be beaten. His 1962 book was the first book to demonstrate card counting…