A Peer-based Model of Fat-tailed Outcomes

Ben Klemens

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arXiv · 1304.0718

A Peer-based Model of Fat-tailed Outcomes

Ben Klemens

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Abstract

It is well known that the distribution of returns from various financial instruments are leptokurtic, meaning that the distributions have "fatter tails" than a Normal distribution, and have skew toward zero. This paper presents a graceful micro-level explanation for such fat-tailed outcomes, using agents whose private valuations have Normally-distributed errors, but whose utility function includes a term for the percentage of others who also buy.

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Ben Klemens. 2013-04-02. A Peer-based Model of Fat-tailed Outcomes. https://arxiv.org/abs/1304.0718

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