Thick tail (and thin tail)
Толстый хвост · Тонкий хвост · Fat tails · Тяжёлые хвосты
In thick-tailed distributions, extreme events are more frequent and more extreme than the bell curve predicts. The tail does most of the work.
Thin tails (Gaussian) describe heights, blood pressure, measurement noise. Thick tails describe market returns, wealth, pandemic spread. In thick-tail land, the «average year» tells you nothing - one rare year contains 90% of the action.
Risk models that assume thin tails (most pre-2008 financial models did) systematically miss the events that actually matter.
A 1-in-1000-year financial event happens every decade. The «1-in-1000» was computed from the thin-tail assumption.
- 1Always ask «is this domain thin-tailed or thick-tailed?» before applying any statistical reasoning.
This part of the knowledge base is inspired by the book. Go to the Ukrainian edition to explore the concept in depth.
- · Меточка по Талебу - fat tails / thin tails