When Are Black Swans White?

Known globally as The Risk Doctor, David has been working in risk management for about 30 years. He has worked in 48 countries on every continent except the Antarctic (too cold!), with clients in most industries.

  Risk Management   ProjectsAtWork  

The Black Swan concept warns us to expect the unexpected, but when it comes managing risk we should be careful to use the term properly and not dilute it through misunderstanding. If we mistakenly think that risks with very low probability and high impact are Black Swans, then we remain unprepared and vulnerable to genuinely unknowable unknowns.

A new term has become popular among people when they talk about risk, including some risk specialists. The phrase “Black Swan” is taken from the title of the 2007 book by Nicholas Nassim Taleb called “The Black Swan: The impact of the Highly Improbable.” Unfortunately, the way most people use this term is different from Taleb’s original definition.

In popular conversation, the Black Swan event is something with an extremely low likelihood of occurrence and an extremely high potential effect. It is seen as the thing that we think will never happen, but if it did happen then we would be affected in a dramatic way. By contrast, Taleb, in his book, says that Black Swans have three characteristics: they are unexpected and unpredictable outliers; they have extreme impacts; and they appear obvious after they have happened.

The term comes from the idea that in the Western world a few centuries ago, it was a known fact that all swans were white. Any similar bird of a different color could not be a swan, …

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