Fat Tails Matter

The difference between fair-coin randomness and fat-tailed randomness is the difference between human height (bounded, predictable) and wealth (unbounded, extreme). Investment returns, pandemic spread, and viral content all live in fat-tailed worlds where the "average" is a useless summary.

Mistaking fat-tailed risk for normal risk kills companies and portfolios. The 2008 financial crisis happened because banks modeled mortgage defaults as coin flips. They were not — defaults were correlated, and when the tail event came, it wiped out supposedly safe bets.