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1/
Get a cup of coffee.
In this thread, I'll walk you through 2 probability concepts: Standard Deviation (SD) and Mean Absolute Deviation (MAD).
This will give you insight into Fat Tails -- which are super useful in investing and in many other fields.
2/
Recently, I watched 2 probability "mini-lectures" on YouTube by Nassim Taleb.
One ~10 min lecture covered SD and MAD. The other ~6 min lecture covered Fat Tails.
In these ~16 mins, @nntaleb shared so many useful nuggets that I had to write this thread to unpack them.
3/
For those curious, here are the YouTube links to the lectures:
SD and MAD (~10 min): https://t.co/0TwubymdE6
Fat Tails (~6 min):
4/
The first thing to understand is the concept of a Random Variable.
In essence, a Random Variable is a number that depends on a random event.
For example, when we roll a die, we get a Random Variable -- a number from the set {1, 2, 3, 4, 5, 6}.
5/
Every Random Variable has a Probability Distribution.
This tells us all the possible values the Random Variable can take, and their respective probabilities.
For example, when we roll a fair die, we get a Random Variable with this Probability Distribution:
Get a cup of coffee.
In this thread, I'll walk you through 2 probability concepts: Standard Deviation (SD) and Mean Absolute Deviation (MAD).
This will give you insight into Fat Tails -- which are super useful in investing and in many other fields.

2/
Recently, I watched 2 probability "mini-lectures" on YouTube by Nassim Taleb.
One ~10 min lecture covered SD and MAD. The other ~6 min lecture covered Fat Tails.
In these ~16 mins, @nntaleb shared so many useful nuggets that I had to write this thread to unpack them.
3/
For those curious, here are the YouTube links to the lectures:
SD and MAD (~10 min): https://t.co/0TwubymdE6
Fat Tails (~6 min):
4/
The first thing to understand is the concept of a Random Variable.
In essence, a Random Variable is a number that depends on a random event.
For example, when we roll a die, we get a Random Variable -- a number from the set {1, 2, 3, 4, 5, 6}.
5/
Every Random Variable has a Probability Distribution.
This tells us all the possible values the Random Variable can take, and their respective probabilities.
For example, when we roll a fair die, we get a Random Variable with this Probability Distribution:
