Part 15/17:
Recognizing that many catastrophic events follow a power-law distribution fundamentally alters how we approach risk. Traditional models assuming normal distributions underestimate the likelihood of extreme events. Instead, our strategies—especially in insurance, disaster preparedness, and investment—must accommodate the heavy tail of power-law behavior.
For example, after the Paradise California wildfire in 2018, insurance companies found that they were unprepared for such a mega-event. Similarly, industries like venture capital thrive precisely because of these power-law dynamics: most startups fail, but a few become billion-dollar successes that eclipse all the others combined.