Come for the hate, stay for the Hayek!
....because its CEO, the ubiquitous Mohamed El-Erian is a nincompoop! Check out this gibberish in today's WSJ: "Fat tails""”the technical term for the extremes of an outcome distribution"”are risks for any global system that loses its anchors. Economies and markets function differently, companies and households feel unsettled, and policy measures become less effective. Oh my. Where to begin. First, "fat tails" is not a "technical term". The technical term is excess kurtosis. Fat tails is the colloquial, layman's term. Second, fat tails is decidedly NOT a term for "the extremes of an outcome distribution"! The normal distribution is an outcome distribution. It does not have "fat tails". In fact it is the lack of fat tails in the normal distribution that lead so many models to go astray How can this dude spew nonsense like this and get away with it? He's failing Stats 101. It must be the 'stache. Finally, the second sentence is even weirder than the first. I cannot make out what he is saying. Is he trying to say that recent events have changed the shape of the "outcome distribution"? Or that when we realized the outcome distribution had fatter tails than was previously thought, people changed their behaviors? The second interpretation at least makes some sense.
Labels: a little knowledge is par for the course, in the land of the blind this guy is still a dope, knowledge is good, statistics
"Heavy tailed" is a technical term in probability (where I have my PhD.) "Fat tails," however, is not in my experience.Heavy tailed distributions have been studied for a long time and have a precise mathematical definition.Actually, I know a fair number of probabilists who consider "excess kurtosis" to be a statisician's term, another way of saying a layman's term, and would prefer referring to the 4th moment or the 4th standardized moment. They are as skeptical of "kurtosis" as a term as you are of fat tailed.
I read the statement and just kind of mentally plugged in "where a lot of density is in" before "the extremes of an outcome distribution." I didn't even notice the elision until you unpacked it. We all use short-hand and I tend to give people the benefit of the doubt on it.
C&C: I know what you mean, but alleged economic experts should not be "using shorthand" (which is a very generous way to put it) in op-eds
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