A black swan event happens when a particular situation shifts from what is expected to happen. It is an extremely unexpected happening and is very difficult to predict. It randomly happens, and when it occurs, it leaves negative implications on the one it has affected.
This term ‘black swan’ was made known by finance professor Nassim Nicholas Taleb in his finance book Fooled by Randomness. According to Taleb, a black swan event unfolds the reality that once an unexpected occurrence happens, people will conclude it as destined to happen. It unfolds the reality that using systematic methods cannot predict black swan events. Lastly, a black swan event unfolds the reality that people rely too much on their belief that a past event will just repeat itself in the future.
The concept of the black swan is like this given perspective: if a human being has never seen a black swan, it does not automatically mean a black swan never exists.
The main idea that Nassim Taleb is trying to point out in his book Fooled by Randomness is that firms should not attempt to predict black swan events, but to be tough when a black swan event comes and sees the positive side of it.
Also, another wise concept Taleb has stated in the book is a black swan event depends on the perspective of the viewer; what may be a black swan event for a fish may not be black swan event on the fisherman. Thus, the goal of the ‘fish’ in this context is to avoid being one by trying to pinpoint areas that are weak in order to transform its black swan events into ‘white’.
There are ways to avoid the probability of black swans to happen. First of which is to think ahead. Ask yourself ‘what if’ questions, no matter how positive or negative it can be, as long as the questions you ask yourself are rational. Imagine that you experience one problem after another, so that you may know the alternatives when multiple problems are faced. Assess the probability of each black swan event to happen. Through this way, you can think critically about the black swan events that might possibly happen, formulate surprising solutions or ways to alleviate it, and when that black swan event comes, you can be ready.
Second, act what is planned. When a black swan event is already right in front of you, implement the contingency plans you or your group has formulated through the ‘what if’ questions you have asked yourselves.
Lastly, if a black swan event happens and you have not done any preparations like asking yourself ‘what if’ questions and making contingency plans, always think critically and wisely. Think of the situation at hand, what to do with it, how to mitigate the loss it has caused, and what to do to avoid the further loss it can cause. Always remember that your decision will not only greatly affect you, but also the members of the firm who are depending on you.