How We Tend To Overestimate Powerlaw Tail Exponents

Nassim N. Taleb

Papers from arXiv.org

Abstract: In the presence of a layer of metaprobabilities (from uncertainty concerning the parameters), the asymptotic tail exponent corresponds to the lowest possible tail exponent regardless of its probability. The problem explains "Black Swan" effects, i.e., why measurements tend to chronically underestimate tail contributions, rather than merely deliver imprecise but unbiased estimates.

Date: 2012-10
New Economics Papers: this item is included in nep-ecm
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