A Black Swan Is Relative to Knowledge
A Black Swan is a highly improbable event that is unpredictable to the observer but rationalized in hindsight. The concept is relative to the observer's knowledge, and such events can be eliminated through science or open-mindedness, but can also be created by giving false confidence.
THE IDEA
A Black Swan Is Relative to Knowledge
From the standpoint of the turkey, the nonfeeding of the one thousand and first day is a Black Swan. For the butcher, it is not, since its occurrence is not unexpected. So you can see here that the Black Swan is a sucker’s problem. In other words, it occurs relative to your expectation. You realize that you can eliminate a Black Swan by science (if you’re able), or by keeping an open mind. Of course, like the LTCM people, you can create Black Swans with science, by giving people confidence that the Black Swan cannot happen—this is when science turns normal citizens into suckers.
Note that these events do not have to be instantaneous surprises. Some of the historical fractures I mention in Chapter 1 have lasted a few decades, like, say, the computer that brought consequential effects on society without its invasion of our lives being noticeable from day to day. Some Black Swans can come from the slow building up of incremental changes in the same direction, as with books that sell large amounts over years, never showing up on the bestseller lists, or from technologies that creep up on us slowly, but surely. Likewise, the growth of Nasdaq stocks in the late 1990s took a few years—but the growth would seem sharper if you were to plot it on a long historical line. Matters should be seen on some relative, not absolute, timescale: earthquakes last minutes, 9/11 lasted hours, but historical changes and technological implementations are Black Swans that can take decades. In general, positive Black Swans take time to show their effect while negative ones happen very quickly—it is much easier and much faster to destroy than to build. (During the Lebanese war, my parents’ house in Amioun and my grandfather’s house in a nearby village were destroyed in just a few hours, dynamited by my grandfather’s enemies who controlled the area. It took seven thousand times longer—two years—to rebuild them. This asymmetry in timescales explains the difficulty in reversing time.)
When to use it
Risk assessment in finance: Evaluating portfolio exposure to rare but devastating market events.
Disaster preparedness: Planning for natural events or pandemics that are outside historical norms.
Innovation management: Recognizing that breakthrough technologies often emerge gradually and are underestimated until they disrupt industries.
Personal decision-making: Questioning routine expectations to avoid being blindsided by career or life changes.
FROM THEORY TO EVERYDAY LIFE
In practice
The Turkey's Black Swan
From the perspective of a turkey, the butcher's action of not feeding it on the 1001st day is a Black Swan—completely unexpected and shocking. However, for the butcher, it is routine and predictable. Black Swans are relative to the observer's knowledge and expectations.
LTCM (Long-Term Capital Management)
LTCM used scientific models to create confidence that a major financial collapse was impossible. When the unexpected Russian debt default caused massive losses, their own science had created the Black Swan by blinding them to its possibility, turning them into 'suckers' according to the text.
Slow-Burning Black Swans
Some Black Swans take years to unfold, like the adoption of computers or the steady growth of books that never appear on bestseller lists but achieve large cumulative sales. These are not instantaneous but still represent a radical departure from expectations.
A MOMENT TO REFLECT
Put it to work.
How can you identify potential Black Swans in your personal or professional life that are hidden by your current assumptions?
What scientific or analytical methods might be giving you false confidence and actually increasing your vulnerability to Black Swans?
Can you think of a slow-building change in your environment that might become a Black Swan if it continues unnoticed?
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)