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On single point forecasts for fat-tailed variables
Nassim Nicholas Taleb1,2, Yaneer Bar-Yam3, Pasquale Cirillo4,5
1Universa Investments, Miami, United States of America.
Abstract:
We discuss common errors and fallacies when using naive "evidence based" empiricism and point forecasts for fat-tailed variables, as well as the insufficiency of using naive first-order scientific methods for tail risk management. We use the COVID-19 pandemic as the background for the discussion and as an example of a phenomenon characterized by a multiplicative nature, and what mitigating policies must result from the statistical properties and associated risks. In doing so, we also respond to the points raised by Ioannidis et al. (2020).
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