As you say, it has never made sense that something as trivial and obvious as financial behavior not being according to normal distributions would be overlooked. It can't really be that Taleb is saying nothing more than that financiers are making that basic a mistake, can it? As posted above Mandelbrot for one apparently thinks even much more sophisticated distributional models are still inadequate.bobcat2 wrote:Financial economists have not modeled financial returns based on the normal distribution for decades. For example, since the early 1980's they have used ARCH and GARCH models that take fat tails and volatility clustering explicitly into account in modeling return data.
Many financial economists, probably a majority, believe that risky assets, such as stocks, are risky in the LR as well as the SR. You don't have to believe Taleb's far out rants about black swans everywhere to believe that. However, what Taleb then does is to take the perfectly reasonable POV that risky assets are risky in the LR and stretch it toward the absurd in several directions, e.g. nobody knows anything about financial risk except him and Mandlebrot. :roll:
That is a believable difficulty and also leads to the conclusion pointed out that nobody knows what to do about it.