The world is currently caught up in a black swan event—the COVID-19 pandemic. Black swan events are unexpected, unpredictable events that have disastrous consequences on the society or the world—an event as rare as sighting a real black swan in the Australian midlands, where they do exist!
The fact that many businesses had to shut down and hundreds of people lost their jobs due to the effects of COVID-19 shows that no one had anticipated or prepared for such a calamity.
The term black swan event was first formalized by writer and former Wall Street trader Nassim Nicholas Taleb in his 2008 book, The Black Swan: The Impact of the Highly Improbable. The book preceded the 2008 financial crisis, a classic example of a black swan event. In his book, Taleb explained the black swan theory and how it can have a severe impact on the world economy, public health and other sectors.
Let’s explore the complex nature of black swan events and how dramatically they can change the world as we know it.
What Is The Black Swan Theory?
The black swan theory highlights events that are rare and hard to predict and have real-world implications.
Taleb’s black swan theory is significant because it brought to light our unpreparedness for disastrous events. Natural disasters like tsunamis and earthquakes occur time and again, but we find ourselves struggling to handle their after-effects every time they take place. Taleb calls it our “collective blindness” to catastrophic events because we refuse to learn from the past to make preparations for the future.
Here are some important examples of a black swan event that we’ve witnessed through the years: both world wars, the Spanish flu and the dot-com bubble in the 2000s that led to large-scale bankruptcy in the US. In India, the share market has faced severe black swan events when the Harshad Mehta stock manipulation scam broke out in 1992 and during the Asian currency crisis in 1997.
How To Prepare For Black Swan Events
Black swan events have a significant impact on the financial markets and the general investment landscape. Even if we want to predict certain events, we simply don’t have the wherewithal to predict the future. In this case, Taleb argues, one has to go through a continuous process of trial and error. For instance, currently, organizations like the World Health Organization (WHO) and pharmaceutical companies are working hard to find a cure or a vaccine for COVID-19, which is a shot in the dark because there’s limited knowledge to go on.
In his black swan theory, Taleb mentioned three attributes shared by black swan events. These are:
They differ from other events and their unexpected nature makes it difficult to perceive them as anything but extraordinary.
These events have a substantial—and sometimes irreversible—impact on the world.
In hindsight, a black swan event seems predictable enough. Experts have argued that the event was, in fact, explainable and they could’ve taken measures to curb its effects.
Even though they seem unexpected, something similar is bound to have happened in the past. For instance, the COVID-19 pandemic isn’t the first deadly virus to hit humanity. India has dealt with the Influenza outbreak in 1918, the 1994 plague and the 2009 swine flu outbreak. An effective way to deal with a black swan event is to learn from past events.
For instance, Taiwan is now the first country to observe 200 coronavirus-free days. Experts suggest that Taiwan learned from their experience with SARS (Severe Acute Respiratory Syndrome) and used that knowledge and experience to fight against COVID-19.
Instead of making plans in advance, it’s advisable to develop strategies and use your resources once the event has occurred. Alter your course of action to achieve your desired goals. For example, when there’s a stock market crash, investors are advised to buy stocks instead of selling their lot. So the strategy should be to first assess the damage, then turn to solutions.
Finding solutions to a problem is a critical skill that you can develop with insight, practice and experience. A proper strategy with the right mindset can help you overcome the toughest challenges.
Harappa Education’s Executing Solutions course will teach you the basics of dealing with a crisis, how to solve problems effectively and how to stay calm amid a storm. Using the Harappa SANE response to a crisis—stay calm, act, don’t react, no secrets and evaluate—you’ll be able to get a sense of the problem, engage key stakeholders and evaluate strategies for implementation. Learn more about crisis management and how to become an effective problem-solver with our time-tested frameworks and expert faculty’s advice!
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