Black Swan (Observer-Relativity)
A Black Swan is an event that is unpredictable from the perspective of a particular observer, not objectively or universally so. Its definition hinges on the observer's knowledge and expectations, as illustrated by the turkey/butcher analogy and the 2008 financial crisis.
THE IDEA
If The Black Swan is about epistemic limitations, then, from this definition, we can see that it is not about some objectively defined phenomenon, like rain or a car crash—it is simply something that was not expected by a particular observer.
So I was wondering why so many otherwise intelligent people have casually questioned whether certain events, say the Great War, or the September 11, 2001, attack on the World Trade Center, were Black Swans, on the grounds that some predicted them. Of course the September 11 attack was a Black Swan to those victims who died in it; otherwise, they would not have exposed themselves to the risk. But it was certainly not a Black Swan to the terrorists who planned and carried out the attack. I have spent considerable time away from the weight-lifting room repeating that a Black Swan for the turkey is not a Black Swan for the butcher.
The same applies to the crisis of 2008, certainly a Black Swan to almost all economists, journalists, and financiers on this planet (including, predictably, Robert Merton and Myron Scholes, the turkeys of Chapter 17), but certainly not to this author. (Incidentally, as an illustration of another common mistake, almost none of those—very few—who seemed to have “predicted” the event predicted its depth. We will see that, because of the atypicality of events in Extremistan, the Black Swan is not just about the occurrence of some event but also about its depth and consequences.)
When to use it
Risk management: Recognize that an event considered a Black Swan by one organization may be foreseeable to another with better information or different models.
Investing: Avoid overconfidence in predictions based solely on past data, as extreme events are observer-dependent and may be anticipated by those with alternative insights.
History analysis: Understand that labeling an event as 'unpredictable' often reflects the limitations of the observers rather than an inherent property of the event.
Strategic planning: Use the concept to question assumptions about what is 'unforeseeable' and to seek out perspectives that might reveal hidden risks.
FROM THEORY TO EVERYDAY LIFE
In practice
September 11, 2001 Attacks
Taleb uses the 9/11 attacks to illustrate observer dependence: the victims did not expect the attack, while the terrorists who planned it did. The same event can be unforeseen by one observer and anticipated by another.
2008 Financial Crisis
Taleb describes the crisis of 2008 as a Black Swan to almost all economists, journalists, and financiers, including Robert Merton and Myron Scholes. He says it was foreseeable to him, while also distinguishing anticipation of a crisis from prediction of its depth.
A MOMENT TO REFLECT
Put it to work.
Can you identify a Black Swan event in your personal life that was unexpected to you but might have been predicted by someone with different knowledge or background?
How does the observer-relative nature of Black Swans affect the way we evaluate predictions and risk assessments in finance and other fields?
Why is it important to consider the perspective of the observer when analyzing historical events or forecasting future shocks?
Often confused with
References
- The Black Swan: The Impact of the Highly Improbable — Nassim Nicholas Taleb (2007)
CONTINUE THE CONVERSATION
Source texts
- The Black Swan The Impact of the Highly Improbable With a new section On Robustness and Fragility (Nassim Nicholas Taleb)