Black Swans: Unpredictable, Game-changing, and Foreseeable (in Hindsight)

While most people have heard of the term “black swan”, few understand what it means. The phrase stems from the previously held belief that all swans were white in color, as this was the only color of swan that human beings had observed. In 1697, Willem de Vlamingh discovered black colored swans in Australia. This was the first recognized black swan event – both literally and figuratively! It was an unexpected happening that should have been foreseeable. Other animals have different colors, so why shouldn’t swans? Hindsight is 20/20 but it is particularly clear when applied to game-changing events that leave their signature stamps on history.

Defining Black Swans

The term was made popular with the release of Nassim Taleb’s book titled The Black Swan: The Impact of the Highly Improbable. In it Taleb defines a black swan event as one that is a surprise to its observers, has a major impact, and can be rationalized with the application of hindsight. Taleb’s work explores the question of why black swan events are considered to be such a surprise. His explanation is that human beings crave order. We don’t want to anticipate the unexpected even if we should. Most humans live life with closed minds. The majority of us are not open to new angles of observation, fresh ideas, and challenges to our commonly held opinions and alleged facts. We expect the patterns that we’ve established to last for eternity (eg. 100 year floods that now happen every few years). Black swans prove that this is a flawed way of looking at the world and that such events – particularly when it comes to disasters (both natural and manmade) – are, if anything, becoming larger and more frequent.

The Significance of Black Swans

Independent thinkers who are capable of embracing opinions and ideas that are “outside of the box” are the least likely to follow conventional lines of logic that lead to black swan events. This can be helpful input to organizations that may be complacent with their own methods and conclusions. It’s easy to fall into the trap of homogenized groupthink. Smart people might agree on certain patterns and an established order but they often fail to account for the possibility of highly improbable events and their potential impact.

Independent thought is especially important in the context of economics. Aside from being an author, Taleb is also a financial analyst. He often takes a contrarian stance that is at odds with the wave that most traditional investors ride. Taleb’s success as an investor is a testament to the value holding a steadfast irreverence for convention.

Preparing for Black Swans

While Taleb’s book isn’t focused on predicting black swan events, it does have a lot to say about preparing for such events. He demands that humanity establish defenses to protect against negative black swans. (He also requests that we take full advantage of positive black swans.) Banks, for example, are especially susceptive to negative black swans due to the inherent instability of the markets when unexpected world events occur.

Instead of ruling out unpredictable events, we should ponder them with a child-like curiosity and develop response plans that consciously embrace ridiculousness and eschew being overly rigid. Instead deviate from the status quo. We’re creatures of habit and we tend to assimilate to the thoughts, words and actions of those around us. Most people are preferential to the established order of things and develop a fear of alternatives to what has become socially normative.

It’s important too to shift one’s mindset when considering black swans. Move from an approach based on reacting to the types or patterns of past events and instead focus on impacts rather than causes so as to be more proactive, pre-emptive, and ultimately resilient.

Black swan events reinforce the importance of critical thinking skills, the willingness to invite, develop and defend unpopular opinions, and most of all the importance of imagination in processes like disaster preparedness and business continuity planning.

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