Black Swan
Candlefocus EditorThe term 'Black Swan' was coined by Nassim Nicholas Taleb in his book 'The Black Swan'. In this book, Taleb explains the effect of profound and unexpected events on the world and how people often seek explanations for why it did or did not happen afterwards. Black swan events have a long lasting effect on the economy and can damage markets and investments.
This unpredictability is due to the way forecasters, who seek to predict the future, usually work. They rely on established tools and models and past data to create predictions and forecasts. However, such methods are unable to predict totally random and unique events like a black swan. Conversely, the use of such methods can lead to more vulnerability to black swans as it gives a sense of false security and can propagate risk.
Ultimately, black swan events are going to happen, but by understanding the unpredictability of them and what kind of implications they can have on the economy, it is possible to be better prepared for when it does occur. Effective risk management is key, and making sure one is aware of the potential for a black swan event to occur, even if it is thought to be impossible, is essential.