Bell Curves Break Down

The normal distribution (bell curve) works beautifully for heights, blood pressure, and exam scores. But applying it to stock returns, earthquake magnitudes, or internet traffic is dangerous. These systems produce massive outliers that "shouldn't" happen under a bell curve.

Bell Curves Break Down

Financial returns and defaults often have fatter tails than a simple bell curve assumes. If a model treats rare losses as nearly impossible and ignores correlation, it can badly understate crisis risk. The lesson of 2008 is not a magic sigma number; it is that the wrong distribution makes extreme events look safer than they are.