Black Swan Event

What Is A Black Swan Event?

A "black swan" is a rare and nearly impossible to predict event that has deep and wide-ranging consequences for the global economy. Because black swan events have generally not happened previously, they are hard to plan for. Nevertheless, some people believe that, in hindsight, the event could have been foreseen and expected.^[1]

The coronavirus pandemic of 2020 is a good example of a black swan event. Other such events include the 2001 terrorist attacks in the U.S., the 2008 global financial crisis, and the U.K.'s vote in 2016 to leave the European Union.^[1]

Black Swan Origins

The term black swan is generally credited to Nassim Nicholas Taleb, a finance professor and securities trader who wrote several books about the phenomenon, including The Black Swan, Skin in the Game and Fooled by Randomness.

According to a review of his book of the same name, a black swan "is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was." While black swans are by definition unpredictable, investors should nevertheless prepare for their possible occurrence, Taleb argues.^[2]

While many events are unpredictable, black swans stand out for their enormous—usually negative—impact on society. However, they can also occur in an individual's personal life, such as the unexpected death of a loved one, a job loss or a natural disaster.^[2]

The term comes from the discovery of black swans in Australia. Previously it had been believed that all swans were white.^[3]

Summary

A "black swan" is a rare and unpredictable event that can upset the world economy. The term is generally credited to Nassim Nicholas Taleb, a finance professor who wrote several books on the subject. The name is derived from the discovery that black swans occur in nature, whereas it was previously believed that all swans were white. The 2020 coronavirus pandemic is a good example of a black swan event.