Several years before the financial crisis descended on us, I put forward the concept of “black swans”: large events that are both unexpected and highly consequential. We never see black swans coming, but when they do arrive, they profoundly shape our world: Think of World War I, 9/11, the Internet, the rise of Google GOOG +2.00% .
In economic life and history more generally, just about everything of consequence comes from black swans; ordinary events have paltry effects in the long term. Still, through some mental bias, people think in hindsight that they “sort of” considered the possibility of such events; this gives them confidence in continuing to formulate predictions. But our tools for forecasting and risk measurement cannot begin to capture black swans. Indeed, our faith in these tools make it more likely that we will continue to take dangerous, uninformed risks.
Some made the mistake of thinking that I hoped to see us develop better methods for predicting black swans. Others asked if we should just give up and throw our hands in the air: If we could not measure the risks of potential blowups, what were we to do? The answer is simple: We should try to create institutions that won’t fall apart when we encounter black swans—or that might even gain from these unexpected events.
- Jul 30, ’14 The Best of Peter Drucker
- Jul 23, ’14 For Arab Christians and secular Arab nationalists, Isis may be the death knell
- Jul 19, ’14 British Government Picks Illumina to Sequence 100,000 Genomes
- Jul 18, ’14 Zoella herself barely watches TV: “My generation, at least the ones I know, are like 70-30 YouTube”
- Jul 18, ’14 The news that business doesn’t want to hear