Eps 65: the covid 19 - is it a black swan?
— The too lazy to register an account podcast
The capital markets have been surprised by COVID-19, which is truly a "Black Swan" event.
From an investment standpoint, stocks anticipate economic activity by 3 to 6 months.
Any investment entails a risk of loss.
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Moreover, pandemics are absolutely predictable (if ever there was one, it was predicted, like Bill Gates, Laurie Garrett, and others) and they are predicted (like the pandemic). Many people who support this popular thinking also lead us to believe, of course, that the "black swan" label can be applied to any event, be it something they do not see coming, or have consequences that have more impact than we think.
It took Taleb to coin and make accessible the term "black swan" in 2007, but there are many characteristics of black swans. Some of these characteristics were known long before the development of communication systems, as were some of the characteristics we philosophize about.
That's what former Secretary of Defense Donald Rumsfeld called the black swan we know or care about.
The third feature of black swan events is that once they occur, they cannot be explained by people who insist that they are actually predictable. Taleb, for example, says: "There is no such thing as retrospectively predictable, retrospectively predictable. This may seem obvious, but it contains a lot of evidence that there are no "black swans" of events.
The Black Swan effect has been identified as a way to mock improbable events as more likely than what is normally expected. The sighting of a "black swan" in Western Australia in the 19th century jettisoned the ingrained notion that "swans are white."
Nassim Taleb coined the concept in his book "The Black Swan Effect," a book about the black swan effect. Nassim Nicholas Tale b wrote: "There is a tendency for confident predictions to ignore the real uncertainties that determine the future.
According to Taleb, a black swan is an outlier outside the normal expectation spectrum that has a massive impact. Although it is usually characterized as negative, such as a loss, it can also be positive, as the event creates or increases value.
In the case of the current pandemic, some readers of this column have expressed doubts about whether it qualifies as a Black Swan at all. Another way to look at this dichotomy is that, in a crisis, there is an upside risk that can potentially be used for value, which is a good sign for a company's long-term future, but a bad sign in the short term. Preparing for a "Black Swan" event must balance the demand for short-term appointments, if at all possible.
At first glance, the coronavirus pandemic threatening populations around the world seems to fit the textbook definition of a "black swan." Climate change and the resulting ecological, economic and social disasters are the next White Swan.
The term "black swan" describes an event that is unpredictable and can have serious consequences. When Europeans first arrived in Australia and New Zealand, where they are quite common, they could not imagine a real black swan. The label became fashionable in the late 1990s and early 2000s, after Dr. Michael O'Brien, a professor at the University of California, Berkeley, coined the metaphor of the "black swan" in a 2007 book of the same name.
Furthermore, responsible preparation can be dismissed as a glaring failure because of its perceived exceptional nature. What makes the occurrence of the COVID-19 outbreak seem astronomically rare is that it is being treated as such and that we will fail to prepare for the next pandemic.
I know this because I am the managing director of a university research institute on disaster risk reduction and have researched and written about disaster and risk management for over 20 years.
While many people know the meaning of a Black Swan, few know the origin of the term. Many of us now know that unexpected events can shake up the world, and popular books have been published about them.
In his book, Nassim Taleb explains the origin of the term: "After the discovery of Australia, people in the Old World were convinced that all swans were white, a belief that seems to be fully confirmed by empirical evidence. The related hypothesis was that the world was changing and that this was a black swan. Black Swan thinking, however, has morphed into a kind of "Black Swan theory," the idea that a mega-event that really changed the world will be rationalized in retrospect. This is the theory of a world - changing events like the Great Depression, the collapse of Lehman Brothers, and the financial crisis.