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How We Tend To Overestimate Powerlaw Tail Exponents

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  • Nassim N. Taleb

Abstract

In the presence of a layer of metaprobabilities (from uncertainty concerning the parameters), the asymptotic tail exponent corresponds to the lowest possible tail exponent regardless of its probability. The problem explains "Black Swan" effects, i.e., why measurements tend to chronically underestimate tail contributions, rather than merely deliver imprecise but unbiased estimates.

Suggested Citation

  • Nassim N. Taleb, 2012. "How We Tend To Overestimate Powerlaw Tail Exponents," Papers 1210.1966, arXiv.org.
    • Handle: RePEc:arx:papers:1210.1966
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    References listed on IDEAS

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    1. repec:hum:wpaper:sfb649dp2005-008 is not listed on IDEAS
    2. Rafał Weron, 2001. "Levy-Stable Distributions Revisited: Tail Index> 2does Not Exclude The Levy-Stable Regime," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 209-223.
    3. N. N. Taleb & R. Douady, 2013. "Mathematical definition, mapping, and detection of (anti)fragility," Quantitative Finance, Taylor & Francis Journals, vol. 13(11), pages 1677-1689, November.
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