Black swan theory

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.What we call here a Black Swan (and capitalize it) is an event with the following three attributes. The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild. The theory was developed by Nassim Nicholas Taleb to explain: Unlike the earlier and broader 'black swan problem' in philosophy (i.e. the problem of induction), Taleb's 'black swan theory' refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences.:xxi More technically, in the scientific monograph 'Silent Risk', Taleb mathematically defines the black swan problem as 'stemming from the use of degenerate metaprobability'. The phrase 'black swan' derives from a Latin expression; its oldest known occurrence is from the 2nd-century Roman poet Juvenal's characterization of something being 'rara avis in terris nigroque simillima cygno' ('a rare bird in the lands and very much like a black swan').:165 When the phrase was coined, the black swan was presumed not to exist. The importance of the metaphor lies in its analogy to the fragility of any system of thought. A set of conclusions is potentially undone once any of its fundamental postulates is disproved. In this case, the observation of a single black swan would be the undoing of the logic of any system of thought, as well as any reasoning that followed from that underlying logic. Juvenal's phrase was a common expression in 16th century London as a statement of impossibility. The London expression derives from the Old World presumption that all swans must be white because all historical records of swans reported that they had white feathers. In that context, a black swan was impossible or at least nonexistent. However, in 1697, Dutch explorers led by Willem de Vlamingh became the first Europeans to see black swans, in Western Australia. The term subsequently metamorphosed to connote the idea that a perceived impossibility might later be disproven. Taleb notes that in the 19th century, John Stuart Mill used the black swan logical fallacy as a new term to identify falsification. Black swan events were discussed by Nassim Nicholas Taleb in his 2001 book Fooled By Randomness, which concerned financial events. His 2007 book The Black Swan extended the metaphor to events outside of financial markets. Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as 'black swans'—undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, the dissolution of the Soviet Union, and the September 11, 2001 attacks as examples of black swan events.:prologue Taleb asserts: