Where Do Thin Tails Come From?
AbstractThe 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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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1307.6695.
Date of creation: Jul 2013
Date of revision: Jul 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-ECM-2013-07-28 (Econometrics)
- NEP-HPE-2013-07-28 (History & Philosophy of Economics)
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