Definition
Nassim Nicholas Taleb popularised the term ‘Black Swan Event’ when referring to an unexpected, unforeseen event that has a huge impact. The metaphor of a black swan originated from the presumption that all swans were white, based on centuries of observation, until black swans were discovered in Australia, challenging the previously held assumption. Similarly, black swan events challenge conventional wisdom and expose the limitations of existing models and frameworks for understanding and managing risk.
Example
2008 Global Financial Crisis
The 2008 global financial crisis, sparked by the collapse of Lehman Brothers, is considered a black swan event due to its unforeseen magnitude and systemic ramifications, catching many financial institutions and policymakers off guard.
Ask yourself
- What key assumptions are we making that may leave us blind to changes?
- Do we regularly practice scenario planning to cultivate open mindedness, curiosity and agility?
- Are we seeking diverse input and opinions or is there too much homogeneity in our leadership team?
Compared to Wild Cards
- Origin and Coinage:
- Wild Cards: This term has been used in futures studies and scenario planning since at least the 1980s.
- Black Swans: Coined by Nassim Nicholas Taleb in his 2007 book “The Black Swan: The Impact of the Highly Improbable”.
- Predictability:
- Wild Cards: Often considered to be somewhat foreseeable, even if unlikely. They can sometimes be anticipated through careful analysis and horizon scanning.
- Black Swans: By definition, are unpredictable and cannot be anticipated based on past experiences or knowledge.
- Frequency of consideration:
- Wild Cards: Regularly included in scenario planning exercises and foresight studies.
- Black Swans: Often excluded from risk assessments and planning due to their perceived impossibility.
- Impact:
- Wild Cards: High-impact events, but the scale can vary.
- Black Swans: Extreme impact events that reshape our understanding of the world.
- Retrospective predictability:
- Wild Cards: May or may not seem obvious in hindsight.
- Black Swans: Appear obvious and explainable after they occur, leading to retrospective predictability bias.
- Scope:
- Wild Cards: Can be positive or negative events.
- Black Swans: Typically associated with negative, catastrophic events, although Taleb’s original concept included positive events as well.
- Use in planning:
- Wild Cards: Often used proactively in strategic planning to enhance organizational resilience.
- Black Swans: Used more to highlight the limitations of prediction and the need for robustness against unknown risks.
In essence, while both concepts deal with unexpected, high-impact events, Wild Cards are more about expanding our consideration of possible futures, while Black Swans emphasize the inherent limitations of our predictive capabilities and the need to build systems that are resilient to the unknown.
Tools
To identify potential black swans, or to prepare to be responsive when one is identified, there are some tools you can use.
- Scenario Planning exercises to explore what best and worst case outcomes might look like.
- Premortem exercises to interrogate a presumed, imaginary failure to work out how it might have come about.
- Red Teaming where one team is dedicated to stress test the resilience and sustainability of plans and to identify vulnerabilities and challenge assumptions.
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