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Where Do Thin Tails Come From?

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  • Nassim Nicholas Taleb

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. "Where Do Thin Tails Come From?," Papers 1307.6695, arXiv.org, revised Jul 2013.
  • Handle: RePEc:arx:papers:1307.6695
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