Black Swan Theory: The Unexpected Event That Changes Your Life

From a rare and elegant animal discovered in Australia in the 17th century, the Black Swan has become the symbol of a universal theory: how rare and unpredictable events can change our lives. Suddenly, for better or for worse.

Index of topics

Origins

The concept of the “Black Swan” was born thanks to the work of Nassim Nicholas Taleb, a Lebanese-American mathematician, essayist and philosopher, who introduced this theory in his 2007 book The Black Swan: How the Improbable Rules Our LivesIn this work, Taleb explores rare and unpredictable events that have a tremendous impact on our lives, history, and economies. A Black Swan, in his definition, is an event that challenges our preexisting understanding and has extraordinary consequences, but which, once it occurs, can seem somehow inevitable.

Meaning

Taleb, to scientifically explain his theory, starts with the name: before the Black Swan was discovered in Australia, everyone, including scientists, thought swans were exclusively white. This was a predictable idea, yet one based on its historical evolution, but it was later demolished by the unexpected discovery. Indeed, a Black Swan can never be predicted, imagined, or classified using scientific methods, due to its extremely low-probability nature. When it arrives, it is often not even recognized for what it truly is. It is, first and foremost, an isolated event that falls outside the realm of normal expectations, since nothing in the past can plausibly indicate its possibility.

Secondly, it has a huge impact. Finally, despite its isolated character, human nature, with its prejudices, leads to the elaboration of a posteriori justifications for its appearance, to make it explainable and predictable.

Features

An event, or a chain of events, with the Black Swan stamp must have three characteristics:

RarityThe event is extremely rare and unexpected, so much so that it does not fit into the forecasts and models commonly used to analyze reality.
Extreme impactThe effects of a Black Swan are enormously impactful. These events have the potential to cause radical changes, both economically and socially.
Retrospective reasonOnce a Black Swan has occurred, we tend to rationalize the event and believe it was somehow predictable, even if it actually wasn't. In other words, our ability to retroactively explain an event makes it difficult to accept its inherent unpredictability.

How to deal with it

Here five rules exclusives to bewitch the black swan.

Changing our way of thinking freeing the mind from prejudices It's the first important rule.
Study mainly rare and extreme events to understand common onesAll studies of social life exclude the extraordinary to focus on the normal, not on rare events and their resulting shocks. To understand a phenomenon, one must first consider the extremes, and in particular whether they have an extraordinary cumulative effect, like a black swan event.
Never let fear paralyze you and not take action.If you're too worried about the next potential black swan event, such as an economic crisis, you might miss out on good investment opportunities.
Always put yourself in a position to seize opportunitiesYou need to have cash to invest when prices are extremely advantageous, and that's precisely the time when everyone else is running away.
Never invest what you might needFirst, you need a savings fund, then a protection fund, and only then an investment fund. Never find yourself in the situation of having to sell your investments following the arrival of a black swan!

Criticisms of the Black Swan theory

The Black Swan theory has been highly successful and is continually revived in times of unexpected and extraordinary events. But it has also drawn considerable criticism. The most well-founded criticism is that it is a "fatalist" interpretation of history and science, greatly reducing the scope for change left to human will, almost forcing us to resign ourselves to our inescapable fate. Taleb has always responded to these objections by saying that the Black Swan theory is not tantamount to surrendering to "fatalism," but rather is a theory that helps us avoid easy optimism.