: Why is the assumption of normal distribution so prevalent in forecasting? Has it been observed historically ?

Question

I keep seeing this when studying economics but it feels like it cant be true

In: 2

Answer 1

The idea that a few situations will have an extreme high or low result, but most results will fall within a more typical range with high and low ends in that range, is pretty ubiquitous. We see it in nature, in social structures, in systems of all types in the world. A few people have no money, a few people have tons of money, most people have somewhere in between. A few people are really tall, a few people are really short, most people fall somewhere in between. A few people get straight A’s, a few people get straight F’s, most people fall somewhere in between. A few people eat no hamburgers, a few people eat lots of hamburgers, most people fall somewhere in between. A few people drive real real slow, a few people drive super fast, most people drive somewhere in between.

This is the idea of a normal distribution. It’s not necessarily the only model out there.

I hope this helps.