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A Peer-based Model of Fat-tailed Outcomes

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  • Ben Klemens

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. "A Peer-based Model of Fat-tailed Outcomes," Papers 1304.0718, arXiv.org.
    • Handle: RePEc:arx:papers:1304.0718
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