Where Do Thin Tails Come From?
Risk Management
2013-07-30 v2 Physics and Society
Methodology
Abstract
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.
Cite
@article{arxiv.1307.6695,
title = {Where Do Thin Tails Come From?},
author = {Nassim Nicholas Taleb},
journal= {arXiv preprint arXiv:1307.6695},
year = {2013}
}