The Black Swan

A black swan is an unexpected event, considered an outlier that no prudent person would have seen coming. The world has always been a complex place, with myriad forces moving about unexpectedly, randomly, with greater or lesser force. When great force appears out of nowhere, consequences can be immense, not least because of lack of preparation or foresight. Identifying unexpected events can be useful in personal aspirations, but the consequences in large interconnected systems such as government, financial markets, or science can affect billions.

Many have argued that the Chinese government should have taken more steps after the SARS epidemic in 2003 to isolate pathogens out of the wild from large, concentrated urban areas: the ‘wet market’ in Hunan. Was the emergence of the coronavirus a back swan, or a predictable event? The jump of the virus has affected millions.

The collapse of LTCM (Long Term Capital Management), run by ‘brilliant’ traders and Nobel laureate economists, in 1998, nearly set off a chain reaction to international financial markets. This single $126 billion hedge fund so threatened the integrity of the entire international financial system, they were bailed out by the Federal Reserve when they could not cover a bad bet on Russian bonds. They were ‘Too big to fail’.

In life, black swans are events we don’t like to think about: unexpected loss of someone you love, loss of fundamental security like employer failure (loss of job), house fire (lost home), or other unforeseeable events that disrupt our lives, redirect our trajectory. Sometimes a new trajectory is good, sometimes it’s debilitating.