 On the Super-Additivity and Estimation Biases of Quantile ContributionsNassim Nicholas Taleb () and
Raphael Douady ()
Post-Print from HAL Abstract: Sample measures of top centile contributions to the total (concentration) are downward biased, unstable estimators, extremely sensitive to sample size and concave in accounting for large deviations. It makes them particularly unfit in domains with power law tails, especially for low values of the exponent. These estimators can vary over time and increase with the population size, as shown in this article, thus providing the illusion of structural changes in concentration. They are also inconsistent under aggregation and mixing distributions, as the weighted average of concentration measures for A and B will tend to be lower than that from A ∪ B. In addition, it can be shown that under such fat tails, increases in the total sum need to be accompanied by increased sample size of the concentration measurement. We examine the estimation superadditivity and bias under homogeneous and mixed distributions. Fourth version, Nov 11 2014 I. INTRODUCTION Vilfredo Pareto noticed that 80% of the land in Italy belonged to 20% of the population, and vice-versa, thus both giving birth to the power law class of distributions and the popular saying 80/20. The self-similarity at the core of the property of power laws [1] and [2] allows us to recurse and reapply the 80/20 to the remaining 20%, and so forth until one obtains the result that the top percent of the population will own about 53% of the total wealth. It looks like such a measure of concentration can be seriously biased, depending on how it is measured, so it is very likely that the true ratio of concentration of what Pareto observed, that is, the share of the top percentile, was closer to 70%, hence changes year-on-year would drift higher to converge to such a level from larger sample. In fact, as we will show in this discussion, for, say wealth, more complete samples resulting from technological progress, and also larger population and economic growth will make such a measure converge by increasing over time, for no other reason than expansion in sample space or aggregate value. The core of the problem is that, for the class one-tailed fat-tailed random variables, that is, bounded on the left and unbounded on the right, where the random variable X ∈ [x min , ∞), the in-sample quantile contribution is a biased estimator of the true value of the actual quantile contribution. Let us define the quantile contribution Date: 2015-07 Published in Physica A: Statistical Mechanics and its Applications, 2015, 429, pp.252-260. ⟨10.1016/j.physa.2015.02.038⟩ Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02488594 DOI: 10.1016/j.physa.2015.02.038 Access Statistics for this paper More papers in Post-Print from HAL |
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