Optimal Allocation of Resources in a Pari-Mutuel Setting

This article deals with an optimal algorithm for wagering in a pari-mutuel situation given that one is a perfect handicapper. A general rule is given for all pari-mutuel events with mutually exclusive outcomes. The rule has several surprising aspects which differ considerably from previous betting rules. The rule is useful when one's own bet is small relative to the total amount bet by the public. The optimality criterion is that of maximizing the expected log return.