BLACK SWAN EVENTS

Black swan events are referred to events that are extremely negative and the occurrence of which is almost impossible to predict. These events are unpredictable and uncanny. When the term “black swan” was coined, black swan was considered to be non-existent. The phrase is derived from Latin expression; its oldest known occurrence is from the 2nd-century Roman poet Juvenal's characterization in his Satire VI of something being "rara avis in Terris nigroque simillima cygno" ("a rare bird in the lands and very much like a black swan")

Nassim Nicholas Taleb popularized the notion of black swan occurrences in his 2001 book Fooled By Randomness, which dealt with financial events. His book The Black Swan, published in 2007, expanded on the metaphor to include occurrences outside of the financial markets. Almost all important scientific breakthroughs, historical events, and creative achievements, according to Taleb, are "black swans"—unpredicted and undirected.

The Black Swan theory suggests what you don’t know is far more important than what you do know. You can use all your knowledge to prepare for what you believe to be every eventuality, only to be proven wrong by one Black Swan event.

Attributes of Black Swan Events

Taleb outlined the three defining attributes of a black swan event:

1. An event that is completely unpredictable

2. Has devastating consequences when it occurs

3. After the occurrence, it often rationalized by people as if it were predictably known as hindsight bias.

Understanding the Black Swan

Although Black Swan occurrences are uncommon, something comparable has likely occurred in the past. The coronavirus pandemic is a Black Swan occurrence, but it isn't the first time humanity have had to deal with a global health epidemic, as Spanish Flu or other outbreaks demonstrate.

Natural disasters are always terrifying, but whether it's an earthquake, tsunami, or volcanic eruption, they've happened before. Regardless of how many times it has happened before, a financial crisis usually strikes out of nowhere and takes most people off guard. These occurrences are notable in that they are not considered as impossible, but rather extremely unlikely, based on historical data.

Although black swan events appear to have a negative connotation, the notion does not apply solely to bad things. The individual's viewpoint determines whether the experience is favourable or negative.

For example, a disastrous day in the stock market may be seen as a positive event for an investor with aggressive short positions but a negative event for an investor who has heavily bought into the market. Or For example, a terrorist attack will be classed as a Black Swan event to most people, but not by the perpetrators. Which means that Black Swan events are not always perceived as negative by everyone.

Real-life Examples

Throughout history, there have been many Black Swan occurrences that have taken many various shapes. Black Swan events include both World Wars, the fall of the Soviet Union, the emergence of Islamic extremists, 9/11, the impact of the Internet's expansion, and the 1987 and 2008 financial crises.

However, we are currently experiencing a Black Swan event. Although there is considerable disagreement over whether the coronavirus pandemic is a Black Swan event, it meets the requirements. While the threat of a virus was recognized, governments throughout the world were unprepared, indicating that it was regarded as an outlier occurrence with a low chance of occurring.

It has had disastrous effects on both public health and the economy. Furthermore, now that it has occurred, it can be explained, and everyone is questioning why we were not prepared.

Most scientific or technical advances, according to Taleb, are the consequence of Black Swans. The majority of discoveries are not planned, but rather arise by chance or as a result of a Black Swan occurrence. Most advances and discoveries would not have happened if not for covid-19 like the vaccine and antiviral drugs.

So, how can one prepare for the unexpected? The idea isn't about attempting to foresee future Black Swan events; rather, it's about accepting that they will happen and being ready to adapt to whatever occurs.