On Single Point Forecasts for Fat Tailed Variables

June, 2020

Abstract

  1. – Forecasting single variables in fat tailed domains is in violation of both common sense and probability theory.
  2. – Pandemics are extremely fat tailed.
  3. – Science is not about making single points predictions but understanding properties (which can sometimes be tested by single points).
  4. – Risk management is concerned with tail properties and distribution of extrema, not averages or survival functions.
  5. – Naive fortune cookie evidentiary methods fail to work under both risk management and fat tails as absence of evidence can play a large role in the properties.
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