Mutual self-awareness and fat tails

Mutual self-awareness among market participants is an important distinction between physical and social systems. David Rowe argues that this is a fundamental cause of the well-documented characteristic of fat tails in the distribution of changes in market data, and should be a key focus of all market risk managers

Years ago, when I taught basic statistics, the one concept I tried to be sure students would remember well into the future was the central limit theorem, sometimes referred to as the law of large numbers. This is the initially somewhat amazing fact that the distribution of sums and averages of random variables exhibit a traditional bell curve or normal distribution even when the individual variables are not normal. While theoretical exceptions exist, this holds true for almost any stable random