Fat tail

Okay kiddo, a fat tail is like when you have a lot of stuff in your backpack and it sticks out on the sides instead of sitting neatly on your back.

In finance and statistics, a fat tail means that there is a higher chance of some things happening that are not expected, like a really big loss or gain. Usually, when we make predictions about something, we expect that most of the time things will be close to our prediction and just a few times things will be much better or worse than we thought. But in some cases, there is a higher chance of very good or very bad things happening. This is what we call a fat tail.

Think of it like this - when you are playing a game and you roll a dice, it's very unlikely that you will roll a six three times in a row. But sometimes, if the dice is not balanced well, it can happen more often than expected. This is like a fat tail. We might not expect something to happen many times, but it can happen more often than we thought if certain conditions exist.

That's why researchers and investors often study fat tails, to understand how likely some really good or bad things can happen in the future. It helps them be better prepared and make better decisions about what to do with their money.