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Built to Survive the Waiting

“The waiting is the hardest part.” — Tom Petty

The central failure of tail risk protection is usually not the crash. It is the years before the crash, when human behavior takes over: protection costs money (“the bleed”), appears unnecessary, and becomes progressively harder to defend (i.e., “everything else is going up!”). This paper addresses the accumulating financial, behavioral, and organizational burden of “waiting out the bleed,” and it treats that burden as a design input rather than an inconvenience. (1)

We first discuss common reasons why tail risk programs cause behavioral issues.…