Fat Tails

Biological Parallel

Most trees in a forest have similar lifespans (normal distribution), but bristlecone pines include individuals over 5,000 years old—extreme outliers orders of magnitude beyond the mean. These 'fat tails' aren't measurement error; they represent fundamentally different processes (negligible senescence, extreme stress tolerance). Financial returns exhibit identical structure: rare extreme events occur far more frequently than normal distributions predict, because the generating process isn't Gaussian—it's multiplicative, networked, and prone to cascades.