The Fat Tail

The "Fat Tail" refers to a statistical concept where the probability of extreme events is higher than what traditional models predict. In many real-world scenarios, like finance or natural disasters, instead of following a normal distribution with a predictable number of rare events, the distribution has heavier tails. This means that very unlikely outcomes happen more often than expected, leading to surprises in risk assessment and decision-making. Understanding the fat tail helps individuals and businesses prepare for unexpected, significant events that can have substantial impacts.