In News
- A study by the Reserve Bank of India (RBI) talked about the possibility of capital outflows of $100 billion from India in case of a major global risk scenario or a “black swan” event.
What is a “black swan” Event?
Unpredictable event:
- A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
Characteristics:
- They have three distinguishing characteristics :
- They are extremely rare and outside the realm of regular expectations;
- They have a severe impact after they hit; and
- They seem probable in hindsight when plausible explanations appear.
Origination of the term:
- The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001.
- Name of the book: It was later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.
Naming “black swan”:
- Europeans believed all swans to be white until 1697, when a Dutch explorer spotted the first black swan in Australia.
- The metaphor ‘black swan event’ is derived from this unprecedented spotting from the 17th century, and how it upended the West’s understanding of swans.
- The lesson is that what we think are very rare events may be more common than previously thought.
Examples of Past Black Swan Events
- The crash of the U.S. housing market during the 2008 financial crisis is one of the most recent and well-known black swan events.
- Also in 2008, Zimbabwe had the worst case of hyperinflation in the 21st century with a peak inflation rate of more than 79.6 billion percent. An inflation level of that amount is nearly impossible to predict and can easily ruin a country financially.
- The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category.
Is the Covid-19 pandemic a black swan event?
- According to Taleb, it was a “white swan” event because it was predictable.
- Outbreaks of any pandemic are difficult to individually predict, but the possibility of one occurring and having a major impact on systems around the world was known and documented.
Grey Swan Event
|
Source: IE
Previous article
India-Bangladesh Joint Consultative Commission
Next article
Pink Bollworm