Black Swan Event |
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What is a Black Swan Event?
A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.
Understanding Black Swan
• The term was popularized by Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader. Taleb wrote about the idea of a black swan event in a 2007 book prior to the events of the 2008 financial crisis.
• Taleb argued that because black swan events are impossible to predict due to their extreme rarity, yet have catastrophic consequences,
• Taleb describes a black swan as an event that
1) is so rare that even the possibility that it might occur is unknown,
2) has a catastrophic impact when it does occur, and
3) is explained in hindsight as if it were actually predictable.
• The last key aspect of a black swan is that as historically important event, observers are keen to explain it after the fact and speculate as to how it could have been predicted. Such retrospective speculation, however, does not actually help to predict future black swans as these can be anything from a credit crisis to a war.
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