Adopting Levy distributions would invalidate nearly all classical econometric methods

Evidence

Mandelbrot, like Prime Minister Churchill before him, promises us not utopia but blood, sweat, toil, and tears. If he is right, almost all of our statistical tools are obsolete-least squares, spectral analysis, workable maximum-likelihood solutions, all our established sample theory, closed distribution functions. Almost without exception, past econometric work is meaningless. Surely, before consigning centuries of work to the ash pile, we should like to have some assurance that all our work is truly useless. If we have permitted ourselves to be fooled for as long as this into believing that the Gaussian [normal-distribution] assumption is a workable one, is it not possible that the [Levy] revolution is similarly illusory? — Donald MacKenzie, An Engine, Not a Camera, 505

Categorization

• XREF: Connects to the broader performativity thesis — the stakes here are about which statistical apparatus shapes what counts as valid market knowledge. — connects to: Levy distributions yield more stable estimates of extreme moves than variance-based methods — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 937; Empirical aggregation tests undercut the Levy distribution’s self-similarity claim — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 507; Personal career calculus, not just evidence, shaped academics’ abandonment of Levy distributions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 511 (+1 more)
• DEEPTHINKING: Cootner’s epistemic-conservatism argument has a beautiful symmetry: it applies equally to defenders of any paradigm facing a revolution, and prepares the ground for why the Gaussian assumption persisted despite evidence.

Broader Connections

• Empirical aggregation tests undercut the Levy distribution’s self-similarity claim #corroborates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 507
• Levy distributions yield more stable estimates of extreme moves than variance-based methods #contradicts (0.72) — Donald MacKenzie, An Engine, Not a Camera, 937