How to Embrace 'Black Swan' Events - Common Sense Living Newsletter
 
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How to Embrace 'Black Swan' Events

Life
Nov 23, 2016

How to Embrace 'Black Swan' Events 

Demonetisation. Whatever you think of it - it appeared out of the blue and affected the whole country.

Same goes for Donald Trump's victory that stunned the whole world.

These were arguably the 'black swan' events of contemporary politics.

A black swan event is an event that is almost impossible to predict; it occurs suddenly and carries an extreme impact. The term 'black swan' was coined from an ancient proverb that said black swans did not exist - until they were seen in the wild one day.

Some of the classic black swan events in history are: World War I, the sinking of the Titanic, the stock market crash of 1987, the 9/11 attacks, the tsunami of 2004, the recession of 2008, and so on. On the other hand, we have positive events such as the rise of the internet in the early 2000s, and the smartphone revolution.

In his book The Black Swan: The Impact of The Highly Improbable, Nassim Nicholas Taleb says that a black swan event has three major attributes:

  1. It's nearly impossible to predict - nothing in the past convincingly points to its possibility.
  2. Its effects are extreme and seen on a large scale.
  3. The third and the most important - after everything's over...people come up with explanations and believe there were evidences that could have led to its prediction.

When Narendra Modi demonetised the highest currency notes overnight, the nation was taken aback. But soon the decision was linked to some warnings that Modi gave in the past; he hinted that a storm was on its way.

What I wonder is - could we have prepared for it?

Experts argue that black swan events can never be predicted. However, if we harbour open-mindedness and awareness, we can be ready for an uncertain future and what it brings.

Once we embrace uncertainty, we're somehow prepared for it.

The question is - how do we embrace?

Seek the nonobvious

The world we live in runs on rules and principles. While there are certain universal rules - like the laws of physics - that are almost impossible to argue with, there are many that are proven wrong time and again.

Cliched social theories such as the 'rich get richer, and poor poorer' have been challenged by men who journeyed from rags to riches in every era.

Here's another example: If you believed, as many did, that having enough cash on hand would keep you safe in times of economic turmoil, and planned accordingly, that theory was disproved today.

While forecasting, it's important to look for the events that negate your theories. Ask yourself, 'what's happened in the past that disproves my pet theories and planning?'

All of us accumulate confirming evidences for our planning model, but that doesn't make anyone a better forecaster. What helps is looking for contrary evidence, that makes you question your planning model, and then plan for contingencies.

Avoid being a nerd

Reasoning based on past events is good, but don't let it become your only tool.

Be ready for a broader range of outcomes rather than analysing things only with tools you have been taught to use.

Facts and figures from the past, and calculated forecast may help you predict what's more likely to happen - but don't stick to them.

A website that confidently and loudly claimed that Hillary's winning chances were close to 75 per cent - three times more than the man who actually won - went down like the Titanic when the results were announced.

Everyone who relied on it received the shock of their life. Had they been open to and prepared for all possible outcomes, Trump's victory wouldn't have been a black swan event for them.

Don't follow the herd

Humans, in general, harbour a tendency to follow the herd. They believe what others are doing must be right, they look to 'experts' for guidance. But we fail to realise that many domains are wildly random and can't be mastered by forecasters.

Black swan events have shaped fields like technology, business, and science. In these domains, we'd never know what will be the next 'big thing'.

Do not accept something as true just because large masses believe in it. It's better to know that you do not know, rather than to not know that you don't know.

Think for yourself.

At last, it's okay if things never happen as they were planned because the whole universe is an accident and we are black swans... And we have learned to embrace ourselves.

Image Source: Piotr Zajda/Shutterstock.com

 
 

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1 Responses to "How to Embrace 'Black Swan' Events"

keerthi appa rao

24 Nov, 2016

Really beautiful Black Swan theory. Unexpected things occurred are coming under this theory. Victory of Trumph and demonetisation both are occurred on same day. Men are going as herds is also being witnessed by us in many occasions. At last we became black swans. I think I could not express property. Really wonderful article. Thank you.

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