Kelly criterion

For a binary contract, the Kelly fraction is (p - price) / (1 - price), where p is your probability and price is the market price. If you think an outcome is 60 percent likely and it trades at 50 cents, Kelly says stake 20 percent of bankroll. Most practitioners use a quarter or half of that because overestimating p is the normal failure.

Kelly assumes you know your edge, that bets are independent and that you can tolerate large swings. None of those hold perfectly in prediction markets, which is why fractional Kelly is the sane default.

The formula also says to bet nothing when you have no edge, which is its most useful instruction.