The black swan theory or theory of
black swan events is a metaphor that describes an event that
comes as a surprise, has a major effect, and is often inappropriately
rationalized after the fact with the benefit of hindsight. The term is
based on an ancient saying that presumed black swans did not
exist – a saying that became reinterpreted to teach a different lesson
after the first European encounter with them.
The
theory was developed by Nassim Nicholas Taleb to explain:
1.
The disproportionate role of
high-profile, hard-to-predict, and rare events that are beyond the realm of
normal expectations in history, science, finance, and technology.
2.
The non-computability of the
probability of consequential rare events using scientific methods (owing to the
very nature of small probabilities).
3.
The psychological biases that
blind people, both individually and collectively, to uncertainty and a rare
event's massive role in historical affairs.
Taleb's "black swan theory" refers only to
unexpected events of large magnitude and consequence and their dominant role in
history. Such events, considered extreme outliers, collectively play
vastly larger roles than regular occurrences. More technically, in the scientific
monograph "Silent Risk" Taleb mathematically defines the black
swan problem as "stemming from the use of degenerate metaprobability"
The phrase "black swan" derives from a 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"): When the phrase was coined, the black swan was
presumed not to exist. The importance of the metaphor lies in its analogy to
the fragility of any system of thought. A set of conclusions is potentially
undone once any of its fundamental postulates is disproved. In this case, the
observation of a single black swan would be the undoing of the logic of any
system of thought, as well as any reasoning that followed from that underlying
logic.
However, in 1697, Dutch explorers led by Willem de Vlamingh
became the first Europeans to see black swans, in Western Australia. The term
subsequently metamorphosed to connote the idea that a perceived impossibility
might later be disproven. Taleb notes that in the 19th century, John Stuart
Mill used the black swan logical fallacy as a new term to identify
falsification.
Black swan events were discussed by Nassim Nicholas Taleb in
his 2001 book Fooled By Randomness, which concerned financial events. His 2007
book The Black Swan extended the metaphor to events outside of financial
markets. Taleb regards almost all major scientific discoveries, historical
events, and artistic accomplishments as "black swans"—undirected and
unpredicted. He gives the rise of the Internet, the personal computer, World
War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks
as examples of black swan events.:
Taleb
asserts:
·
What we call here a Black Swan (and
capitalize it) is an event with the following three attributes.
· First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme 'impact'. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
·
I stop and summarize the triplet:
rarity, extreme 'impact', and retrospective (though not prospective)
predictability. A small number of Black Swans explains almost everything in our
world, from the success of ideas and religions, to the dynamics of historical
events, to elements of our own personal lives.
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