Explained: What exactly is a “black swan” event?

Admin049 views

Understanding with examples

Read more

A black swan is an unpredictable and rare event that comes as a surprise and has a significant impact on society or the world. These occurrences are said to have three distinguishing features:

  • they are highly rare and outside your expectations;
  • they have a significant impact after they hit;
  • In retrospect, they appear probable, with plausible explanations.

When did the phrase first appear?

Nassim Nicholas Taleb, an author and an investor, put forward the black swan theory in 2001. It was later popularised in his 2007 book, The Black Swan: The Impact of the Highly Improbable. His work was named one of the 12 most influential books since World War II by the Sunday Times.

The term is based on an ancient saying that presumed black swans did not exist until 1697 when a Dutch explorer saw the first black swan in Australia.  This unique occurrence inspired the term “black swan event.”

Taleb’s book does not attempt to lay out a strategy for predicting such events, instead emphasizing the importance of developing “robustness” in systems and methods to deal with black swan occurrences and resist their impact.

When have such incidents occurred in the past?

  • the 2008 global financial crisis was a black swan event precipitated by a sudden crash in the thriving US housing market.
  • the fall of the Soviet Union, 
  • the September 11, 2001, terrorist strike in the United States,
  • 1930 economic depression, WW1, and WW2 also fall into the same category.

Is COVID-19 a black swan event too?

Some refer to it as a “white swan”, arguing that it was predictable, and there was no excuse for governments and businesses to be unprepared for anything like this. While the outbreak of any pandemic is difficult to individually predict, the likelihood of one emerging and having a significant influence on global systems is known and documented.

Source: IE