Ken Jennings:

Had 65600 from game 1. Had 23000 in game 2 prior to FJ.

James Holzhauer:

Had 34181 from game 1. Had 44000 in game 2 prior to FJ.

Ken, were he to wager everything in game 2 FJ, would have 46000 + 65600 = 111600.
James, were he to wager everything in game 2 FJ, would have 34181 + 88000 = 122181.

If both wager 0, Ken would have 88600 total and James would have 78181.

James needs to wager at least 33420 to cover Ken's highest possible total. Ken knows James will wager at least that much. If James wagers that much and gets it right, there is nothing Ken can do to beat him. However if James gets it wrong, he will have 78181 or less.

Ken already has 88600 in the bank. Since he cannot beat James if James gets it right, he has to bank on James getting it wrong. How do you guarantee a win if James gets it wrong? Stay above 78181. Thus Ken has to wager less than 10419; otherwise if both get it wrong James could theoretically still win (if James for some reason wagered nothing).

Since these are just points and not real money being wagered, there is no benefit to having a high score if you don't win. So Ken might as well just wager 0. Which he did. It was a perfect play given the situation. If you think it was a bad wager, you are foolish.