Black Swan

Ashrit Shetty
Stilkenboom
Government, per 2A
16 April 2009
The Black Swan
An appropriate definition for a Black Swan is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Black Swan events may also be called outliers.
The theory was described by Nassim Nicholas Taleb in his 2007 book The Black Swan. Taleb regards many scientific discoveries as "black swans" — undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, and the September 11, 2001 attacks as examples of Black Swan events. The term Black Swan comes from the assumption that 'All swans are white'. In that context, a black swan was a metaphor for something that could not exist. When a black swan was discovered in Australia, the term arose. Taleb notes that John Stuart Mill first used the Black Swan narrative to discuss falsification.
The main idea in Taleb's book is not to try to predict Black Swan events, but to build robustness to the negative ones, while being able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond that predicted by their defective models. In his book, he discusses 10 principles for a black swan-proof world. As he states, if one follows these principles, then one will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news. In other words, a place more resistant to black swans.