> The black swan is something that is completely unforeseeable and for which there are no previous
> partial or complete examples, either of the final outcome or the contributing causes.
Not according to Taleb, who should know as he developed and named the concept. According to him a black swan only has to be unpredictable to the observer.
But the point is that ignoring the possibility of unpredictable (to you) events is a fallacy. So a black swan event is any event an observer assumes is impossible, or so unlikely as to be ignorable, but then actually happens. Whether an event is a black swan, being an observational fallacy, is subjective.
So taking the 9/11 attacks, for some professionals in the intelligence agencies these were not black swan events because they knew they could happen, but for the population at large and to politicians in particular, they very much were black swan events.
> So a black swan event is any event an observer assumes is impossible, or so unlikely as to be ignorable, but then actually happens. Whether an event is a black swan, being an observational fallacy, is subjective.
I see.
I'm not really sure how that helps in any discussion of risk management at all, except to remind risk assessors that a) they should keep looking and b) they'll fail anyhow, just going on the numbers (the set of potential outcomes being unbounded, nobody will ever foresee all eventualities).
The point of drawing attention to black swans is to make it clear that you can't plan your way into a situation where you've avoided all risks. So, you're right. It doesn't help much past that.
This is obvious in many areas - nobody believes we can avoid all fires, for example (or we'd defund fire departments and cancel our fire insurance).
Yet in other areas there tends to be a view that we should be able to perfectly avoid risks.
This is dangerous, because a lot of black swan events that might be impossible to avoid, can still be substantially reduced in magnitude if you apply the other main forms of risk management to a greater degree to supplement avoidance.
Even when we don't mean to, it is easy to get thrown into this pattern of reacting to a specific risk that is in our face right now rather than to address broader methods of mitigating classes of risks.
Consider if prior to 9/11, past experience with dozens of hijackings over decades had been used to consider how to reduce the potential impact of a hijacking, and there'd been locks on the cockpit doors.
It seems far more feasible that effort into investigating risk mitigation by considering possible wide catching responses to known risks (past hijackings, mentally unstable passengers, illness) could have stopped 9/11 this way, than that more effort into risk avoidance by pouring money into intelligence agencies would have led to forever preventing someone from pulling off a 9/11 type plot, for example.
This is why this idea is important. But you're right: It is just a reminder of what ought to be obvious, that we can't avoid all risks because we can't possibly predict them all.
Not quite. It means that just because you can't imagine how your nuclear reactor might go into catastrophic failure, you still need to have a bullet proof, well rehearsed, properly funded response plan in place.
It means that just because you don't think there can be a simultaneous collapse of all your major banks, you still need to have robust capitalisation requirements, diversification of your financial institutions risk profiles, a plan on how to deal with the failure of institutions that are 'too big to fail', etc.
It means that heavily optimising for current stable conditions is a mistake, no matter how sure you are they will remain stable indefinitely.
Comments
> The black swan is something that is completely unforeseeable and for which there are no previous > partial or complete examples, either of the final outcome or the contributing causes.
Not according to Taleb, who should know as he developed and named the concept. According to him a black swan only has to be unpredictable to the observer.
But the point is that ignoring the possibility of unpredictable (to you) events is a fallacy. So a black swan event is any event an observer assumes is impossible, or so unlikely as to be ignorable, but then actually happens. Whether an event is a black swan, being an observational fallacy, is subjective.
So taking the 9/11 attacks, for some professionals in the intelligence agencies these were not black swan events because they knew they could happen, but for the population at large and to politicians in particular, they very much were black swan events.
> So a black swan event is any event an observer assumes is impossible, or so unlikely as to be ignorable, but then actually happens. Whether an event is a black swan, being an observational fallacy, is subjective.
I see.
I'm not really sure how that helps in any discussion of risk management at all, except to remind risk assessors that a) they should keep looking and b) they'll fail anyhow, just going on the numbers (the set of potential outcomes being unbounded, nobody will ever foresee all eventualities).
The point of drawing attention to black swans is to make it clear that you can't plan your way into a situation where you've avoided all risks. So, you're right. It doesn't help much past that.
This is obvious in many areas - nobody believes we can avoid all fires, for example (or we'd defund fire departments and cancel our fire insurance).
Yet in other areas there tends to be a view that we should be able to perfectly avoid risks.
This is dangerous, because a lot of black swan events that might be impossible to avoid, can still be substantially reduced in magnitude if you apply the other main forms of risk management to a greater degree to supplement avoidance.
Even when we don't mean to, it is easy to get thrown into this pattern of reacting to a specific risk that is in our face right now rather than to address broader methods of mitigating classes of risks.
Consider if prior to 9/11, past experience with dozens of hijackings over decades had been used to consider how to reduce the potential impact of a hijacking, and there'd been locks on the cockpit doors.
It seems far more feasible that effort into investigating risk mitigation by considering possible wide catching responses to known risks (past hijackings, mentally unstable passengers, illness) could have stopped 9/11 this way, than that more effort into risk avoidance by pouring money into intelligence agencies would have led to forever preventing someone from pulling off a 9/11 type plot, for example.
This is why this idea is important. But you're right: It is just a reminder of what ought to be obvious, that we can't avoid all risks because we can't possibly predict them all.
> nobody will ever foresee all eventualities
Not quite. It means that just because you can't imagine how your nuclear reactor might go into catastrophic failure, you still need to have a bullet proof, well rehearsed, properly funded response plan in place.
It means that just because you don't think there can be a simultaneous collapse of all your major banks, you still need to have robust capitalisation requirements, diversification of your financial institutions risk profiles, a plan on how to deal with the failure of institutions that are 'too big to fail', etc.
It means that heavily optimising for current stable conditions is a mistake, no matter how sure you are they will remain stable indefinitely.
But there's an infinite regress. How will your "bullet proof, well rehearsed, properly funded response plan" "go into catastrophic failure"?
What is the point where additional planning is counter-productive?