Black Swan Events: Examples & Understanding Unexpected Occurrences

While black swan events are most commonly associated with the financial world, there are plenty of examples of black swan events in everyday life. A common misconception about black swan events is that they are always negative events, but that is not always the case. The primary characteristic of black swan events is their unpredictability, not that they are negative in nature.

Summary

• Black swan events are not just confined to the financial markets. They are more common as events that affect everyday life.
• Black swan events are major, unpredictable occurrences that come with a swift and widespread impact.
• Such events are often thought of as purely negative, but may just as likely be positive events.

What Makes a Black Swan Event?

There are three defining characteristics of black swan events, as put forward by Nassim Nicholas Taleb. Taleb was an options trader and risk analyst who focused much of his work on the subjects of randomness and probability. He first discussed the notion of black swan events in his 2001 book, “Fooled by Randomness.”

Taleb further expounded on the subject in 2007 in “The Black Swan.” The first book primarily addressed events in the financial marketsFinancial MarketsFinancial markets, from the name itself, are a type of marketplace that provides an avenue for the sale and purchase of assets such as bonds, stocks, foreign exchange, and derivatives. Often, they are called by different names, including "Wall Street" and "capital market," but all of them still mean one and the same thing., but his 2007 book looked at black swan events in everyday life as well.

He defined black swan events as events with the following traits:

• They are rare and so unique and unexpected as to be virtually unpredictable.
• They cause a significant impact and far-reaching consequences.
• People tend to rationalize the events after the fact, arguing that the events were foreseeable and predictable. Taleb argued that such hindsight reasoning is almost always mistaken, that anyone correctly predicting a black swan event would be as unlikely as the event itself.

Taleb, illustrating the relative nature of black swan events, said that what is a black swan event for a deer who gets shot is not one for the hunter who shoots the animal.

Example: The Coronavirus Pandemic

The coronavirus pandemic of 2020 is a classic black swan event. It came totally out of the blue, suddenly, and with severe consequences worldwide. The spread of the coronavirus elicited a response unlike any other health threat, virtually shutting down entire economies across the globe and leading to massive changes in people’s lifestyles. It certainly resulted in an undeniably huge impact on everyday life.

In addition to its widespread consequences in everyday life, the pandemic is also viewed as a black swan event by the financial markets – stocks on the New York Stock Exchange (NYSE)New York Stock Exchange (NYSE)The New York Stock Exchange (NYSE) is the largest securities exchange in the world, hosting 82% of the S&P 500, as well as 70 of the biggest tumbled by one-third within the first few weeks of the recognition of the virus.

Like many black swan events, the coronavirus crisis is seen as a wholly negative event. However, there are favorable black swan events, too.

A Good Black Swan Event: The Rise of Personal Computing

A major example of a good black swan event in everyday life is the rise of personal computing in the 1980s, followed by the explosion of the internet in the 1990s. Personal computers and internet connections changed so many aspects of everyday life – how people work, how people connect and communicate, and how financial transactions are handled, just to name a few of the high points.

How many people can even remember when nearly every office in the U.S. was hugely populated with IBM Selectric typewriters? That long-time, mainstay piece of office equipment, the typewriter, was virtually swept out of existence in less than a decade, by the arrival of PCs and word processing programs.

Also virtually swept away – the hardcopy written letter, forevermore replaced by email. And can anyone also remember a time when there weren’t internet dating websites?

The vast, sweeping changes created by the computer and internet age are so vast and sweeping and have become so rooted in our everyday lives that it truly requires an effort to think back to how different things were before they happened.

An excellent example was offered by a young singer who came across the old Jim Croce hit, “Operator,” about a man trying to make a long-distance phone call to his long-lost girlfriend. The young singer said that he had to ask someone what an “operator” was. Indeed! Who, nowadays, in the age of cell phones, ever has to use a telephone operator? Do we even still have telephone operators?

Other Examples of Black Swan Events in Everyday Life

Again, the key distinguishing characteristics of black swan events are that they are major, rare, and unexpected events. An individual winning the lottery is a black swan event for them – and certainly a welcome one.

On the negative end of the spectrum, the murder of a close relative or loved one is almost always a black swan event in the lives of those people who were close to the victim. Historically, the advent of movies, radio, and television all qualify as black swan events in everyday life.

Why Businesses Don’t Like Black Swan Events

We’ve stressed the point that black swan events can be either positive or negative. However, businesses generally tend to view all black swan events as at least somewhat negative. Why? Because the success of businesses relies heavily on predictability, while black swan events are unpredictable. Being able to forecast supply and demandSupply and DemandThe laws of supply and demand are microeconomic concepts that state that in efficient markets, the quantity supplied of a good and quantity in the marketplace for goods and services is vital to the survival of companies.

Here’s a prime example of a black swan event that was positive for many people but negative for many businesses. The creation of streaming video services is something that’s been widely enjoyed by many people – but it all but completely erased the video rental business, including major companies, such as Blockbuster, within a span of just a few years. Many businesses that have eventually prospered from the major shift to e-commerce went through a difficult and expensive adjustment period of shifting their business model to fit the new marketplace.

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