How to Minimize Chances of Black Swan Effect

Definition🔊

'The Black Swan' created by Nassim Taleb introduced the phenomenon that is universally applicable to any social or business field, and attributed with the three mandatory properties:

• It demonstrates lower than average probability of emerging
• It has an extreme impact on the environment
• It is followed by extracting data for plausible explanation in retrospective.

The technologies that are not yet recognized but may still carry a potential for making a high impact are also referred to as Black Swans.

Nassim Taleb illustrates this phenomenon with three recently implemented technologies: the personal computer, the Internet, and the laser.

These technologies came into usage practically unnoticed and remained in obscurity long after their implementation, yet their presence had been dramatically altering the global business and social landscape.

It shows that the Black Swans are not always negative events, as in most cases, they were driving forces shaping the course of history and technology. However, they are always unexpected and, thus, are 'dealt with' in real time by trial and error until the alternative is found.

Though some experts believe that Black Swan is just a beautiful metaphor that provokes 'loose talk', the numerous events (to be precise, 40000) that are easy to categorize as actual black swans suggest otherwise.

Below, we are analyzing the negative Black Swans and offering the list of the known solutions for minimizing their effect.

Facts analysis

📑✍9/11 attacks in 2001, the financial crisis in 2008, the Fukushima accident in 2011, the news of the British referendum’s decision on Brexit are examples of the Black Swan events.

Due to the unexpected occurrence of the Black Swans, it would be tempting to sweep away any possibility of forecasting.

But relying on forecasting tools by implementing data and time tracking software that have beyond-standard capability still seems promising.

This way, the ripple effects across multiple sectors that are often associated with occurrence of the Black Swans, can be quantified, and, thus, accounted for estimating likelihoods in future.

The Black Swan events being highly consequential may cause serious damage to finance and economy, which means that building strong but flexible systems that stay robust while instantly responding to changes is the only logical solution.

The experts from Sequoia Capital venture fund stated it brilliantly on their blog:

...nobody ever regrets making fast and decisive adjustments to changing circumstances.

In other words, making a choice in favor of flexibility, robustness and creativity makes you more resilient than over-focusing on building seemingly perfect but, in actuality, rigid structures that are prone to sudden breakage.

The recent Black Swan event is the lightning spread of COVID-19 that came as an unforeseen accident. Globally, it shifts focus of public attention to newly shaped reality of social distancing and associated challenges.

Given the ongoing situation that snowballed into a management issue for majority of industries in more than 150 countries, it requires quick fix solutions and, according to Wall Street Journal, adjustment to a new business era.
In particular, it forces the global business environment to go remote, and to some extent it can be regarded as an exam for the worst-case scenario readiness.

What works

🆗✅Narrowing the topic to the proven ways of minimizing the Black Swan effect, the following should be regarded:

• Being random and unexpected, logically, the Black Swan should be expected then, which means we are to be prepared for it at all time and become a stoic, or as Taleb put it:

...the modern stoic sage is someone who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.

• Being prepared implies planning that includes several scenarios, and the spectrum of response must be defined prior to implementation of any action plan.
• Be aware that planning without threat assessment 'opens the doors' for the Black Swan. Integrating uncertainty into a decision-making process minimizes the risks.
• Set realistic goals, which means alignment of the purpose you keep in mind with the resources you have at your disposal.
• The long span of planning increases the risks so breaking down the process into stages decreases the risks during the performance of the project.
• The strategy that works for most societal systems is built upon expansion on technology increasing the chances if not standing against all the Black Swan odds but surely regaining the sense of focus and recuperating faster.
• Quantifying the unexpected starts with collecting comprehensive data aiming at identifying relevant variables and creating sensitivity charts.
• Be ready to disrupt your beliefs when you have to face the Black Swan.
  To avoid misjudgment, concentrate on visualizing consequences: this will exclude flooding your mind with too many probabilities.
• Disrupting beliefs implies '2 No' Tactics:

a) Do not discard the least obvious scenario;

b) Do not repeat the scenario that failed you before.

• If nothing works, then just switch to a theory of tipping point and wait. Created by Malcolm Gladwell, the tipping point analysis shows that during the times of high uncertainty there comes the moment of accumulating the critical mass that completely changes the trajectory of the event.

In Summary

🌟🦢Philosophically speaking, sticking to stoicism proves best: its system of views incorporates expecting the worst while keeping on proactive.

Hence, once it comes you are not surprised, and rather spend resources on being driven by search for solution than lamenting.

In practice, coping with the Black Swan effect, we should speak of mitigating risks, and the optimal way to do it is to expect the unexpected and at the same time work on expanding the capabilities of technology.

With embracing this minimum, the negative impact of the Black Swan proves to diminish.