Where Do Thin Tails Come From?
Nassim Nicholas Taleb
(Submitted on 25 Jul 2013 (v1), last revised 29 Jul 2013 (this version, v2))
The literature of heavy tails (typically) starts with a random walk and finds mechanisms that lead to fat tails under aggregation. We follow the inverse route and show how starting with fat tails we get to thin-tails when deriving the probability distribution of the response to a random variable. We introduce a general dose-response curve and argue that the left and right-boundedness or saturation of the response in natural things leads to thin-tails, even when the “underlying” random variable at the source of the exposure is fat-tailed.
via [1307.6695] Where Do Thin Tails Come From?.
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John, these two papers on fat tails are the most important papers published on the subject this year. For many this may sound like Mr. Taleb is on Mars, which he is since he is taking the ideas to its logical conclusion; that is why he sounds like an old guru on a mountain talking to the dark opaque. I have noted his intellectual growth ever since I bought a copy of “Fooled by Randomness”; sometimes he goes back to discussing the same idea, for example: randomness delivering many outcomes in time which he discussed in that book, or for example in his aphorism book, “The Bed of Procrustes” he missed explicitly his latest idea anti-fragility : the closes he got was on the Plato one where he says knowledge is fragile or robust, but didn’t take the leap to its anti-thesis that didn’t have a name then. Therefore Mr. Taleb is the process of learning, too; maybe he wants to be a niche intellectual like Mandelbrot who few understand, but his ideas applied to everything from nature to videogames, is through his geometry is how computers render graphics of mountains and clouds. Of course the internet has helped Mr. Taleb to be a potent intellectual and by pass the old establishment; it was through moneychimp.com that I first heard of him as I was looking for an investment book for some ideas I had at the time. We can see his intellectual growth live on line, and imbibe whatever other ideas he will deliver.
Thanks Edvin. Agree it’s interesting to track NNT’s ideas as they develop and spread. Also his relationship to the public. Cheers, John