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Statistical Consequences of Fat Tails: Real World Preasymptotics, Epistemology, and Applications (Technical Incerto)

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Statistical Consequences of Fat Tails: Real World Preasymptotics, Epistemology, and Applications (Technical Incerto)

4.85 47,817 ratings · 8,519 reviews
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Overview: The book investigates the misapplication of conventional statistical techniques to fat tailed distributions and looks for remedies, when possible.Switching from thin tailed to fat tailed distributions requires more than "changing the color of the dress." Traditional asymptotics deal mainly with either n=1 or n=∞, and the real world is in between, under the "laws of the medium numbers"-which vary widely across specific distributions. Both the law of large numbers and the generalized central limit mechanisms operate in highly idiosyncratic ways outside the standard Gaussian or Levy-Stable basins of convergence.A few examples:- The sample mean is rarely in line with the population mean, with effect on "na�ve empiricism," but can be sometimes be estimated via parametric methods.- The "empirical distribution" is rarely empirical.- Parameter uncertainty has compounding effects on statistical metrics.- Dimension reduction (principal components) fails.- Inequality estimators (Gini or quantile contributions) are not additive and produce wrong results.- Many "biases" found in psychology become entirely rational under more sophisticated probability distributions.- Most of the failures of financial economics, econometrics, and behavioral economics can be attributed to using the wrong distributions.This book, the first volume of the Technical Incerto, weaves a narrative around published journal articles.

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Nassim Nicholas Taleb writes contemporary fiction and has always been fascinated by character-driven stories. They hold a degree in English Literature and previously worked as an editor before transitioning to writing their own books. Nassim Nicholas Taleb lives with their spouse and a very vocal rescue cat.

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Took a moment to build, but the payoff was spectacular. The middle had a deliberate pace, but the climax was phenomenal. A wonderful companion for a quiet weekend.
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Exceeded all my expectations. It strikes a perfect harmony of dialogue and world-building. Every chapter felt necessary. A true literary gem.
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