From UPSC perspective, the following things are important :
Prelims level : ‘Black Swan’ Event
Mains level : Read the attached story
A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows to the tune of $100 billion (around Rs 7,80,000 crore) from India in case of a major global risk scenario or a “black swan” event.
What is a ‘black swan’ event?
- A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
- These events are said to 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
When did the term originate?
- The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.
- It is described as one of the 12 most influential books since World War II.
- In his book, Taleb does not try to lay out a method to predict such events, but instead stresses on building “robustness” in systems and strategies to deal with black swan occurrences and withstand their impact.
Behind the metaphorical name
- The term itself is linked to the discovery of black swans.
- 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.
When have such events occurred in the past?
- Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US.
- 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?
- Taleb does not agree with those who believe it to be one.
- Rather, he called it a “white swan”, arguing that it was predictable, and there was no excuse for companies and governments not to be prepared for something like this.
- While the outbreak of any pandemic is difficult to individually predict, the possibility of one occurring and having a major impact on systems around the world was known and documented.