Explained: What is a black swan event?

A study conducted by the Reserve Bank of India (RBI) talked about the possibility of this happening Capital outflows to the tune of $100 billion (about Rs 7,80,000 crore) from India in the event of a major global risk scenario or “black swan” event.

What is the “Black Swan” event?

The black swan is a rare and unpredictable event that comes as a surprise and has a huge impact on society or the world. These events are said to have three distinct characteristics – they are extremely rare and beyond regular expectations; They have a severe effect after hitting them; They seem likely in hindsight when reasonable explanations arise.

When did the term originate?

The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later published in his 2007 book – The Black Swan: A Highly Improbable Effect. The Sunday Times described his work as one of the 12 most influential books since World War II.

In his book, Taleb does not attempt to devise a method for predicting such events, but instead emphasizes building “strength” in systems and strategies for dealing with black swan incidents and resisting their impact.

The term itself is associated with the discovery of black swans. Europeans believed that all swans were white until 1697, when a Dutch explorer discovered the first black swan in Australia. The “black swan event” metaphor derives from this unprecedented discovery from the 17th century, and how it upended the West’s understanding of swans.

When have such events occurred in the past?

Interestingly, Taleb’s book predates the 2008 global financial crisis – the black swan event triggered by a sudden collapse in the booming housing market in the United States. The fall of the Soviet Union, the terrorist attack on the United States on September 11, 2001, also fall into the same category.

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Is the COVID-19 pandemic a black swan event?

Student does not agree with those who think they are the same. In an interview with Bloomberg in 2020, he called it a “white swan,” arguing that it was predictable, and there was no excuse for companies and governments not to prepare for something like this.

While it is difficult to predict the outbreak of any pandemic individually, the possibility of it occurring and having a significant impact on systems around the world has been known and documented.

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