Why Gaussian Copulas Are Ubiquitous in Economics: Fuzzy-Related Explanation

Authors

Chon Van Le, International University of Ho-Chi-Minh CityFollow
Olga Kosheleva, The University of Texas at El PasoFollow
Vladik Kreinovich, The University of Texas at El PasoFollow

Publication Date

2-1-2022

Comments

Technical Report: UTEP-CS-22-26

Abstract

In many real-life situations, deviations are caused by a large number of independent factors. It is known that in such situations, the distribution of the resulting deviations is close to Gaussian, and thus, that the copulas -- that describe the multi-D distributions as a function of 1-D (marginal) ones -- are also Gaussian. In the past, these conclusions were also applied to economic phenomena, until the 2008 crisis showed that in economics, Gaussian models can lead to disastrous consequences. At present, all economists agree that the economic distributions are not Gaussian -- however, surprisingly, Gaussian copulas still often provide an accurate description of economic phenomena. In this paper, we explain this surprising fact by using fuzzy-related arguments.