Each … This is the same theory behind a "black swan event" - an event that is nearly impossible to predict. What is a black swan? Answer 2: Black swan events can only be effectively predicted and prepared for by mathematical and philosophical reasoning. The “barbell strategy” is designed to minimize the pain of a negative Black Swan while, potentially, reaping a positive Black Swan’s benefits. Consider, for example, a financial analyst predicting the price of a barrel of oil in ten years. Taleb has very little patience for “experts”—academics, thought leaders, corporate executives, politicians, and the like. The barbell strategy is an important part of Taleb’s black swan theory. His argument was that black swan events are impossible to predict, and, as a result, almost always have disastrous and catastrophic consequences for those involved. As Nassim Taleb describes it, a Black Swan … (Another variation on the strategy is to have a highly speculative portfolio but to insure yourself against losses greater than 15%.) Black Swan is artsy and full of cinematic tricks and techniques that make art house lovers drool. The accident could have been mitigated had original safety features been installed during initial construction of the dam. The idea of black swan events can be traced back all the way to 2nd-century Rome, when a poet named Juvenal wrote about something being “rare [...] very much like a black swan.” Only, when Juvenal wrote this, he didn’t know that black swans actually existed. Most social, man-made aspects of human society—the economy, the stock market, politics—hail from Extremistan: They have no known upper or lower bounds, their behavior can’t be graphed on a bell curve, and individual events or phenomena—i.e., Black Swans—can have exponential impacts on averages. The high-risk portion of Taleb’s portfolio was highly diversified: He wanted to place as many small bets as possible to increase the odds of a Black Swan paying off in his favor. The story behind the theory: In the 18th century, it was common western belief that all swans are white. It is a large bird with mostly black plumage and a red bill. What Is a Black Swan? What is the Black Swan Theory? What constitutes a Black Swan? She’s published dozens of articles and book reviews spanning a wide range of topics, including health, relationships, psychology, science, and much more. The Black Swan is named after a classic error of induction wherein an observer assumes that because all the swans he’s seen are white, all swans must be white. The scale of what’s happening is hard to grasp, and it’s logical to wonder whether COVID-19 is the so-called black swan that society and business have feared. Former Wall Street trader Taleb is said to have used the term following the financial crash of 2008. In Mediocristan, randomness is highly constrained, and deviations from the average are minor. In financial modeling, this process is typically used to estimate changes in the value of a business or cash flow. For example, no one can predict when an earthquake will strike, but one can know what its effects will be and prepare adequately to handle them. They are disproportionately impactful; and, because of that outsize impact, Why world-changing events are unpredictable, and how to deal with them, Why you can't trust experts, especially the confident ones, The best investment strategy to take advantage of black swants. In Mediocristan, prediction is possible. Benefits. The “Black Swan” is Taleb’s theory, which examines difficult-to-predict and rare events that have tremendous impact and require a new explanation, which ultimately turns out to be simple. If one of those people is Jeff Bezos, however, suddenly the wealth average changes drastically (Extremistan). He devoted 85%–90% of his portfolio to extremely safe instruments (Treasury bills, for example) and made extremely risky bets—in venture-capital portfolios, for example—with the remaining 10%–15%. What does the term “black swan” mean? When Taleb was a trader, he pursued an idiosyncratic investment strategy to inoculate himself against a financial Black Swan. Taleb's black swan is different from the earlier philosophical versions of the problem, specifically in epistemology, as it concerns a phenomenon with specific empirical and statistical properties which he calls, "the fourth quadrant". What does “black swan” mean? What is a black swan? But in retrospect they look as if they were obvious and inevitable. In 2007, former hedge fund manager and derivatives trader Nassim Nicholas Taleb wrote one of the best books of modern times: The Black Swan: The Impact of the Highly Improbable. The theory is a combination of mathematical and philosophical reasoning to explain and describe the randomness of uncertainty. Disadvantages It can’t account for the truly random—a natural disaster that disrupts a key producer, or a war that increases demand exponentially. He left a stack of cultures lying out in his laboratory while he went on vacation, and when he returned he found that a bacteria-killing mold had formed on one of the cultures. The problem is that this model is innately narrow. Meaning of “Every Battle Is Won Before It Is Ever Fought” (Sun Tzu), Zurara: Biographer Invented Race In The 15th Century, Coping with Life Changes and Transitions (Who Moved My Cheese), Natural Aggression: It’s Normal, But Also Harmful, Mass Incarceration Is the New Jim Crow in the US, Stable Populations and Behavioral Strategies, Naive Empiricism: When Ignorance Makes You Smarter. Think of an ice cube sitting on a table. The Black Swan is named after a classic error of induction, the black swan fallacy. This was based on all observations made of swans to date. What is a black swan? The same goes for an economic recession. An event that is unpredictable and unexpected in even the … A Black Swan can also be seen as a rare and unpredictable event that undermines everything you've known before. Black Swans have three salient features: Taleb’s black swan theory, however, is that Black Swans, by their very nature, are always unpredictable—they are the “unknown unknowns” for which even our most comprehensive models can’t account.