but it's very rare for everything to go wrong all of the time.
I think in reality the inputs to these models are a lot less independent than they would like. Even in the example at the start of the article, I suspect that for most folks income from a side hustle and investment rate of return are both highly correlated to the overall economic conditions. Attempting to add statistical rigor to something as open ended as predicting the future feels quixotic.
I like to say "it's not the variance that gets you, it's the correlation." In my experience, "fat tail" risks are really about incorrect modeling of correlation.
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I think in reality the inputs to these models are a lot less independent than they would like. Even in the example at the start of the article, I suspect that for most folks income from a side hustle and investment rate of return are both highly correlated to the overall economic conditions. Attempting to add statistical rigor to something as open ended as predicting the future feels quixotic.
I like to say "it's not the variance that gets you, it's the correlation." In my experience, "fat tail" risks are really about incorrect modeling of correlation.