A DEFENSE OF THE “GAUSSIANS.”

A DEFENSE OF THE “GAUSSIANS.” Nicholas Nassim Taleb is very critical of the “Gaussian” financial theorists who assume that a bell-shaped curve can be used to model financial markets. (A bell-shaped curve results from a “normal” probability distribution, sometimes referred to as a Gaussian distribution). As I posted here, Taleb thinks that the Gaussian distribution greatly underestimates the probability of rare events. In light of my strong belief that too much of our public discussion is expressed in terms of certainties, I should acknowledge that analyzing events in terms of a range of probabilities is a big advance—even if the wrong probability distribution is used. The people who applied probability theory to financial markets were advancing knowledge even if—as is now apparent—their models were not as good as they thought they were.