What is the concept of “Black Swan”?


We once discussed with you MEMS ON THE INTERNET, and now we’ll talk about a more serious concept that has already been established.

The term “Black Swan” refers to certain critical events that cannot be predicted, but which, nevertheless, fundamentally change the course of history. Black swans can represent both positive phenomena (for example, the advent of the Internet) and negative ones (the rise to power of Adolf Hitler).

The “Black Swan” is also known as a Latin expression – the oldest known quote is from the ancient Roman poet and satirist Juvenal, – “a rare bird on earth is like a black swan” (Latin rara avis in terris nigroque simillima cygno)

The term “black swan” has become firmly entrenched in the consciousness of our society after the publication of the book by Nassim Taleb “Black Swan. Under the sign of unpredictability. ” Although this metaphor has been known in philosophy for a long time, it was Taleb who began to use it to refer to rare and unexpected events with significant consequences. At the same time, “black swans” can be not only negative events, but also represent unpredictable “good luck”

Let’s find out more about all this …

In the Middle Ages, the very assumption of the existence of a black swan in nature looked so absurd that it became a metaphor for something absolutely impossible. Until 1697, it was believed that swans are only white, but the Dutch expedition, led by Willem de Vlaminck, discovered a population of black swans in Western Australia. Now the black swan is depicted on the flag of Northern Australia. The discovery of the first black swan was a big surprise for ornithologists.

Nassim Nicholas Taleb (born in 1960) is a mathematician, trader, businessman and philosopher, a native of Lebanon, and now lives in the United States. The family of Nassim Taleba, professing Orthodoxy, was deported from the Lebanese city of Amiun in 1975, after the outbreak of the civil war. The ancestors of Taleb in the past held high positions in the Lebanese government, his father was an oncologist, was engaged in anthropological research.

The Black Swan book, published in 2007, has sold over 300,000 copies. She has been on the New York Times bestseller list for seventeen weeks and has been translated into 27 languages. In October 2009, according to the magazine “Secret of the company”, the book topped the list of Top 5 business bestsellers.

In recent years, humanity has experienced a series of severe shocks. Such as September 11, 2001, the global financial crisis, the war in Ossetia, in Ukraine. All of them, which seemed absolutely impossible until they happened, now seem to us logical. It is such unpredictable events that Taleb proposes to call Black Swans. According to his authoritative conviction, it is precisely such events that leave a mark, both in history as a whole and in the life of each individual person.

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As part of the life of one individual, Taleb proposes to conduct an imaginary experiment: to consider his life and study in it the role of such unpredictable events with great consequences. It is worth remembering the moment of choosing a profession, meeting a life partner, betrayal, expulsion from the motherland, sudden enrichment or ruin. How could you plan these things? How often do you expect such moments in your life? There is a saying: “If you want to make God laugh, tell God about your plans,” which is just about that.

The essence of the question is this: this is not an expected event that cannot be predicted. In contrast to this concept, the term White Swan exists – an event that is predictable to one degree or another. For example, experts predict what will happen to oil in 20 years – this is the White Swan, but it is impossible to predict how much it will cost in a year. Or the prediction that Medvedev or Putin will become the country’s president, or even Prokhorov, are predictable situations with varying degrees of error. Was it possible to predict Yeltsin’s statement on the eve of 2000 that he would remove the president’s powers? This is not a predictable situation.

Yes, after, it fit into the logic, but, before – it simply could not have crossed my mind. The meaning of the Black Swan is that, as a rule, it is not subject to man, despite the fact that it, as a different format of events on earth (together with the white swan), is completely a real thing. The black swan has a place to be. Human life has always been determined by the degree of predictability. The more unpredictable it is, the more interesting it is. Of course, to a certain extent, because a completely unpredictable life is terrible.

But the more it becomes predictable, the more boring. And so in a circle. This means that our life is formed under the influence of two currents: white and black swans. The white swan allows a person not to fall into despondency from hopelessness, and therefore he is proud of himself from the ability to predict. The black swan does not leave a person any chance to feel omnipotent. And, if you remove one of these pillars, our life that we live in will turn into nothing. We will turn into either animals or gods. And the earth, as you know, was created for people.

So, the Black Swan is impossible to predict, it must be understood and expected. Expect that the unexpected can always happen.

Financial experts, over and over again, are defenseless in front of black swans. The mortgage crisis has destroyed thousands of enterprises and brought entire countries to their knees. Companies must have a backup plan to be less fragile. Disasters, however incredible they may seem, should be planned. Not somehow specific, but asking the only correct question: “what if?”.

By their very nature, black swans cannot be predicted, because such events have never happened before by definition. However, one can study how organizations, nations, or disaster survivors dealt with their consequences. Such an analysis can help prepare companies for building strategies that help them to get back on their feet after emergencies as quickly as possible.

The theory of expectation of the unexpected is not prophetic, but it had the widest resonance in history and philosophy. Taleb made many small bets on incredible events and got rich, because some of them, however, have occurred. The basic principles of his theory of the Black Swan include three main criteria.

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Let’s list them and evaluate on the example of Bitcoin:

1. The event is unexpected.

Before Bitcoin, history did not know the currency that no nation would stand for and the transfer of which would not be based on trust. Before the advent of the Internet, this was not possible at all. For some time, outside the narrow community of cryptologists, this idea was meaningless and did not find understanding on the part of the government and banking institutions. It never occurred to anyone to control or try to stop Bitcoin – they simply did not take him seriously. And then it was too late.

The first criterion: yes.

2. The event has a big impact.

To date, the currency has peaked at a total value of about $ 12 billion. This is only about 2.5% of the value of the Google search engine company. However, at present, the vast majority of countries know about bitcoin, and in many of them local banks have issued warnings or bans on its use. Bitcoin has overgrown with an army of global supporters, and a close-knit community has formed around it. It includes politicians, bankers, regulators, investors and scientists trying to understand it, control it, profit from it and use it as a catalyst for changing the world.

The second criterion: yes.

3. After the event has already occurred, they give him a retrospective rational explanation – as if it were to be expected.

If we look at two well-known Black Swans, we can retroactively explain them from a rational point of view. If we talk about the Internet, then, given how many personal computers were purchased in the 80s and early 90s, it becomes obvious that in the end they would be interconnected for email delivery and news exchange.

In the event of September 11, in retrospect, “experts” linked anti-Americanism growth points in radical parts of the Muslim world and suddenly “remembered” an unsuccessful attempt to blow up the World Trade Center building with a car bomb in an underground parking lot several years earlier, and it became “obvious” to them that thing of the same order was to happen again.

Has Bitcoin ever been analyzed from a rationalist point of view through the prism of history? But are we already at a point where we have enough data for such an analysis? Probably, there is no jury that could evaluate this. Bitcoin is still in its infancy, and time will decide what place this experiment will take in the annals of history.

Third criterion: unknown.

However, perhaps it was the Black Swan that gave rise to the birth of Bitcoin: a mortgage crisis that shook the entire banking industry. Bankers were well aware that it was a vicious practice to give housing to property and rent to everyone. But this was not their problem, because they sold loans and enriched themselves at the expense of other people’s problems. When the loans stopped returning on time, this created a chain reaction that spread to large insurance agencies and investment companies – all this led to a debt gap.

Of course, looking back, it becomes OBVIOUS that this was about to happen. For this, there are credit reports. Loans that stop being paid are bad for everyone. And of course, after the fact, an entire army of critics in suits and ties ranted in the news that they had foreseen the impending crisis.

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How to live in a world full of Black Swans?

So Black Swans cannot be predicted. But you can learn to live with them. Here are some tips that Taleb gives us:

Learn to distinguish between “good” accidents and “bad” ones. In cinema, in science, or in venture capital deals, there are good Black Swans. If you are engaged in such a business, then your happiness lies in ignorance, especially if your competitors do not know anything either, but, unlike you, you are not aware of this. But in areas where inability to calculate risks is fraught with failure, they should be feared. Service in the army and in state security, as well as banking, are among these areas.

Think broader and not try to predict a particular Black Swan. Louis Pasteur, who said that luck loves those who are ready for it, understood that in order to make a discovery, it was pointless to stubbornly search for something specific. Scientists are working hard to create the conditions for a fluke and catch the Black Swan.

Seek out encounters with the Black Swan. A publisher, a representative of a reputable foundation or an eminent scientist expresses a desire to meet with you – do not miss this opportunity – the second time it may not turn up. Do not get stuck in a routine, communicate with people. In a big city, the probability of meeting a good Black Swan is greater than in the wilderness.

Be suspicious of government plans and forecasts. Do not forget that the main thing for an official and a banker is to stay afloat, and not to get to the bottom of the truth. This does not mean that this entire audience is completely useless: you just have to be on the alert and not fall victim to their “production costs”.

Do not waste your nerves and time fighting with “specialists” of all stripes. Wacky predictions have been and always will be, the main thing is not to trust them too much. Having heard how the specialist pronounces the words “equilibrium” and “normal distribution”, do not argue with him, but put a rat in his collar.

10 principles of Taleb for the sustainable world of the Black Swan

It is better for something fragile to break when it is small than when it becomes large and significant.

It is unacceptable to blame losses on everyone, and privatize the chosen ones to profit

Blindfolded people who drive a school bus (and crash it) cannot be trusted with a new bus

An incentive bonus cannot be offered to a nuclear power station manager without a tangible penalty in case of failure

Balance complexity with simplicity

Do not give children a dynamite checker, even if you warned them and provided instructions

Only scams of financial pyramids can be built on the trust of investors. For government securities, “restoration of confidence” is unacceptable

Even if the addict is breaking, do not give him a new dose.

Citizens should be protected from fluctuations in the value of financial assets or erroneous “expert” advice regarding their retirement benefits.

Start frying omelettes with pre-broken eggs.

Especially for you Alihan Alihanrin!
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