Normal distribution - thin tail
Last week I learnt a new piece of jargon. A ‘fat-tail event’ is something that you thought was virtually impossible, but it happened anyway. In theory, it could be very good or very bad, but it usually refers to something extremely unpleasant, such as a financial crisis.
The phrase comes from statistics. Many randomly occurring events (such as the height of the person you sit next to on the bus) are assumed to follow what is called a Normal Distribution (the classic ‘bell-shaped curve’). So you are more likely to sit next to someone around average height and less likely to sit next to someone really short or really tall. With the Normal Distribution the probability of something really unusual happening tails off really rapidly the further away you get from the average — it has a thin tail.
See the fat tail!
However, some things in the real world don’t follow the Normal Distribution curve. Instead of a thin tail, they have a fat tail. This means that certain extreme possibilities are more likely than you might think.
I was quite pleased to be able to use my newly discovered jargon in a session on negotiation skills I was running last week. I was talking about the usefulness of assessing any negotiated deal by imagining how it would look if subsequent events turned out a lot better or a lot worse than you were expecting (e.g. your fixed-rate mortgage doesn’t look so good if the Bank of England cuts rates to zero).
Does this black swan have a fat tail?
A related term for unexpected events is a Black Swan, coined by author Nassim Nicholas Taleb. This is the unexpected event which you could not have predicted based on your previous experience and derives from the fact that, until they were discovered in the 17th century, most Europeans thought that black swans could not exist.
Having unearthed this useful bit of jargon, I then came across this talk by Tim Ferriss applying some of the teachings of stoicism to making dramatic changes in your life. The idea is to examine in detail the worst-case scenario and come to terms with it. It made a connection with the idea of paying more attention to those potentially negative events that might be more likely than you think.
All of this reminded me of something I had read about a while ago — a career coaching model from Charles Chen (see the post on Positive Compromise). The ‘3E’ or ‘Challenge Preparation’ model is aimed at equipping people for the challenges they might face in pursuing their career goals. It consists of three elements:
- Exploring existing resources — Identifying how the client has met challenges in the past. Helping them to understand what they are capable of and building confidence for tackling future challenges.
- Envisioning upcoming challenges — Focusing in as much detail as possible on the challenges the client is likely to face in the future (including worst-case scenarios). Thinking about what attitudes and approaches might enable the client to meet those challenges.
- Enacting live dramas — Looking at ways in which the client can prepare themselves practically to face future challenges. Finding opportunities to practise the skills and attitudes necessary to increase the likelihood of success.
I’m not sure about the usefulness of this model for all situations, but I can see it being quite effective if you are dealing with a client who is apprehensive of change or worried that things might be too difficult for them.
- How often do you address the worst-case scenario with clients?
- Does your action planning involve looking at the client’s ability and confidence to achieve the goals they are setting?
- Are you helping clients to face their fears by learning from the past and practising for the future?
- Was a lot of poor people defaulting on ridiculous loans really a fat-tail event?
Further reading
- Chen, C. (1997) Challenge-preparation: the ‘3E’ approach in career counselling. Journal of Vocational Education and Training, 49(4), 563-571.
- Norem, J.K. (2001) The Positive Power of Negative Thinking. Basic Books.
- Atance, C.M. & O’Neill, D.K. (2001) Episodic future thinking. TRENDS in Cognitive Sciences, 5(12), 533-539.
Careers - in Theory 
#1 by Andrea Hilditch on 1 February 2010 - 20:10
Hmmm – I’m thinking the 3Es could be applied to help simply plan an interview skills session…..?
– Exploring existing resources – importance of researching the company/ job/ sector, using the resources in the Careers Centre, group sharing experiences of the past, information needs
– Envisioning upcoming challenges – group/pairs work to look at the type of interview they might face, the types of questions, preparation needed, the before-during-after, best-worst case scenarios.
– Enacting live dramas – role playing questions they might face/speed networking
Also wondering if it’s a ‘fat tail’ or a ‘thin tail’ that I actually get this session planned by Thursday, as well as that pile of CVs and cover letters to check, new starter induction, employer visits and mock interviews too…..! 🙂
#2 by David Winter on 2 February 2010 - 08:07
Good idea!
In the Exploring Existing Resources section you could also focus on times when they have had to prepare a structured argument, or defend their ideas.
In the Envisioning Upcoming Challenges you could try to get them to imagine a challenging day in the job. What difficulties would they face, what situations might occur that they would have to deal with, and what skills might they use?
Hmmm…sounds more like ‘fat chance’!
#3 by David Winter on 18 March 2010 - 09:42
Another blog post in praise of pessimism.