Taleb distribution

[3] More detailed and formal discussion of the bets on small probability events is in the academic essay by Taleb, called "Why Did the Crisis of 2008 Happen?"

If done consciously, with one's own capital or openly disclosed to investors, this is a risky strategy, but appeals to some: one will want to exit the trade before the rare event happens.

Kay has described Taleb Distributions as the basis of the carry trade and has claimed that along with mark-to-market accounting and other practices, constitute part of what John Kenneth Galbraith has called "innocent fraud".

[8] Some critics of the hedge fund industry claim that the compensation structure generates high fees for investment strategies that follow a Taleb distribution, creating moral hazard.

[9] In such a scenario, the fund can claim high asset management and performance fees until they suddenly "blow up", losing the investor significant sums of money and wiping out all the gains to the investor generated in previous periods; however, the fund manager keeps all fees earned prior to the losses being incurred – and ends up enriching himself in the long run because he does not pay for his losses.