Sunday, January 25, 2009
Characteristics of a Black Swan
by John C. Bogle Nicholas Taleb’s book The Black Swan (2007) covers the three basic characteristics of a black swan: First, it’s an outlier beyond the realm of our regular expectations. That is, it occurs rarely. Second, it’s an event that carries an extreme impact. Third and most important, after it occurs, human nature enables us to accept what happens by concocting explanations that make it seem so predictable, which Taleb calls retrospective predictability—that is, we say we knew it was coming even though we didn’t say so at the time. The classical definition of a black swan event is the combination of these three elements—it’s rare, it’s extreme, and it possesses retrospective predictability.