What colour are swans? White? Black? Did you know that before the discovery of Australia everyone believed that all swans were white. How much of your knowledge is based on generalisations?
Learning from experience and observation is useful but not conclusive…drawing conclusions based on this can have severe limitations. One single observation can invalidate a general statement based on decades of research and trillions of observations.
The idea of the Black Swan is to remind us that just because it has not yet happened does not mean that it cannot..
In 1895, Lord kelvin, a mathmetician & physicist and president of the British Royal Society said “Heavier-than-air flying machines are impossible”
In 1977 Ken Olsen, founder and CEO of Digital Equipment Corporation, said, “There is no reason for any individual to have a computer in his home”.
I wonder how they would feel about those comments today?
Take a moment now….and look at your own life. Count the significant events, the technological changes, the inventions, the social norms…and compare them to what was expected. What about your job, the work you do…meeting your partner, being betrayed, winning a life changing sum of money? How many of these things are predictable? How many transpired the way you thought they would?
How about playing on the stock market? How many of your portfolio managers would produce a definition of risk? Would it include the possibility of the Black Swan? Unlikely, as it has no greater predictability than astrology or peeling an apple, throwing the long curved skin over your shoulder and expecting to see the intial of our true love.
The more complicated the world becomes the less predictable it becomes.
Even when impactful events happen, do we learn from them? Rarely. For example, the French, after the Great War built a wall along the prevoius German invasion route to prevent reinvasion. Hitler however, just went around it. After 9/11, did learning take place about the unpredictability of certain events? No, and what learning we did glean did not help us prepare for the London underground attack…we couldn’t predict it!
Why is this? Well, we are not quite as set up for thinking as we think we are. If our ancestors had been more inclined towards thinking then they might have missed the lion waiting to pounce and been eaten, rather than ran for cover!
So, why do I even bring up the subject of the Black Swan? Simply to remind everyone of the uncertainty of life. That the rare event is one that may change our lives forever…but we have little chance to prepare. To explain that although almost everything in life appears to fit on a bell curve, that the bell curve by its very nature ignores the outliers. It cannot handle large deviations. So we are left with the Black Swans not being recognised or taken into account.
The logic of the Black Swan makes what you don’t know much more important than what you do know. Something we know has a great deal less chance of hurting us than something we don’t. If something is conceivable then we can plan for it, we can even prevent it from happening. If not, then we are in the realm of the unknown unknown . . .