7.8 Statistical Literacy

Great Intellectual Fraud

A

recent article

Tail risk can be evaluated by assuming a normal distribution and computing the probability of such an event. Is that how "tail risk" should be evaluated?

What do you think?

Events more than three standard deviations from the mean are very rare for normal distributions. However, they are not as rare for other distributions such as highly-

skewed

distributions. If the normal distribution is used to assess the probability of tail events defined this way, then the "tail risk" will be underestimated.

Adapted from Online Statistics Education: A Multimedia Course of Study (onlinestatbook.com), Project Leader: David M. Lane, Rice University. Developed with NSF support. The original work is in the public domain; it is cited here at the authors' request. Changes were made: reformatted as an accessible XYZ web edition with native MathML. License: Public-Domain.