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arXiv · 1307.6695

Where Do Thin Tails Come From?

Nassim Nicholas Taleb
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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.

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Nassim Nicholas Taleb. 2013-07-29. Where Do Thin Tails Come From?. https://arxiv.org/abs/1307.6695

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