How to Take Meaning from a Black Swan Event

Brian Christian

Innovation Partner

“Wind extinguishes a candle but energizes a fire. Likewise with randomness, uncertainty, chaos: you want to use them, not hide from them. You want to be the fire and wish for the wind.”
– Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder, 2012

In less than a month our world has changed dramatically. Normally, Inovo’s subscribers turn to us to understand strategic innovation – how to create growth and manage uncertainty. Today, there is a surfeit of uncertainty – but it centers on how to provide for the welfare of employees, their families, and other at-risk people in our communities. We can all sense the many powerful unmet needs at the present, and in the coming months we will see more innovation than we have seen in years.

The COVID-19 pandemic, a fifty-percent drop in the price of crude oil, and the knock-on effects to businesses and markets have upset the global order. We now have a deep visceral understanding of a “Black Swan Event.” It will be some time before we know the full extent of the impact, but for now it’s clear that the short-term economic disruption is considerable. There is likely to be a lasting long-term impact on how the world works.

Such a change of this magnitude couldn’t have been predicted. It is by definition a “black swan”, a metaphor that has become widely adopted and referred to in the past several weeks. According to Nassim Taleb in his seminal book The Black Swan (2007), a Black Swan Event is defined as follows:

1. An outlier – as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility,
2. It carries an extreme “impact”, and
   In spite of its outlier status, our human nature makes us concoct explanations for its occurrence after the fact, making it appear explainable and predictable.
   We can already say that the global pandemic and oil crash fulfill the first two parts of the definition. It’s too early to confirm the third element, but the first-order human reaction, more than the event itself, is quite predictable.

The obvious implication of this definition is that a Black Swan Event cannot be predicted. If such an event cannot be predicted, then what can any individual or company possibly do to prepare for it? Indeed, what is the point of the exercise? The answer to this question lies in Taleb’s follow-on book called Antifragile: Things That Gain from Disorder (2012). If reading is a helpful escape for you at this time, either or both of these books would be a productive use of time. Alternatively, Inovo offers to you these short synopses below with one important caveat: it is impossible to summarize the sweeping scope of these books in a few short paragraphs. It is also not possible to capture the elegance of Taleb’s storytelling. We will simply share those elements that are most useful in considering what could be done at this time.

The Black Swan (2007)

Let’s start at the beginning – an explanation of the book title. Until the late 1700s, the Old World had only known white swans. The logical conclusion was that all swans were white. After the settling of Australia by the British, the first report of a black swan erased centuries of accepted wisdom. The most central theme of the book is that the human mind is inclined to extrapolate empirical observation into accepted fact, with insufficient skepticism and acceptance of other possibilities, setting the stage for dramatic and often disastrous consequences. To be frank, the metaphor of the black swan is less than ideal. It is functional and memorable but not especially compelling. Other historical examples provided by Taleb are much more consequential including the Titanic, World War I, stock market Black Monday, September 11 – catastrophic events with historical consequences that were not at all foreseen. Here are a few of the book’s more important insights about Black Swan Events:

• Some events are rare and consequential but also somewhat predictable. Taleb calls these events “gray swans”. One could argue that our current predicament is more gray swan than Black Swan.
• Black Swan Events can have negative or positive consequences, but the negative ones tend to happen quickly and the positive ones tend to build up over time (revolutionary technologies like the internet).
  A likely event that does NOT happen can also be a Black Swan. Certainly, the sun not coming up tomorrow would be a Black Swan Event.
• The odds of momentous Black Swan Events have increased over time. Population growth, technology and globalization have increased the speed and impact of unexpected events. It should be mentioned that these same factors can accelerate the response, muting the ultimate impact.
• Subject matter experts can be contributors to the occurrence of Black Swan Events when they defend too vociferously, and with insufficient skepticism, the prevailing body of knowledge.

What can an organization pragmatically do to prepare for Black Swan Events? Taleb’s stated objective is to get past observation and onto prescription. He speaks to this in The Black Swan but ultimately devotes his next book to this subject five years later.

Antifragile: Things That Gain from Disorder (2012)

Nassim Taleb is known for his arrogant and bombastic tone. If you can get past that, or consider it part of his charm, then his book, Antifragile, has some instructive things to say. The essential points are:

• Antifragility is beyond mere resilience or robustness. Uncertainty, variability, shocks to the system, etc. actually make the antifragile system stronger.
• Our record of understanding risks in complex systems (biology, economics, climate) has been pitiful. Complex systems require stressors to get stronger.
  Options are the key agents of antifragility. You should create many options, most of which will not pay out, but one of which will – big time.
• Don’t try to predict, analyze and plan (strategically) for one future and path. Instead, create options for any plausible future and multiple paths. Do things, don’t try to reason your way to success.

Although exaggerated, these points contain significant elements of truth, and, therefore, implications for corporate strategy and innovation. What would an anti-fragile innovation system look like? It would look very different than the system most companies have in place today.

There is little that one can do to mitigate the impact of this ongoing Black Swan Event right now. But think of the myriad of choices you are making. Some for immediate concerns but all for an uncertain future – with a hazy horizon encroaching on the present for more than it has it recent memory.  The nature of our work is, by design, how to act now to position for uncertainty. We have written extensively on this topic and continue to make our writings available to the community as a resource.