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Black Swan in Economics – When the impossible becomes reality

, البجعة السوداء في الاقتصادczarny łabędź w ekonomii, Black Swan in Economics

You can’t be sure of anything. The conviction that nothing can surprise you leads to a naive belief in the security and stability of the company. Lack of vigilance and the certainty that you are able to predict everything are the biggest threats to your freedom. Then it appears – the black swan in economics, and you lose everything because nothing can surprise you. Today, you can’t be sure of anything.

 

Black swan in Economics

You are assured of your safety. You feel uncomfortable and live according to your rules. Furthermore, you do what you like. Your company broadens its horizons. You enter new markets. You carry out new projects. From time to time, you hear about a crisis in one of the companies, the leakage of confidential information. But they seem distant. You live in the belief that they will never apply to you.

Now imagine something that seems surreal. The borders are being closed. You are prohibited to leave your home. Crowds of people in masks appear in the streets. Suddenly, you have no idea who is standing in front of you. You lose solid ground under your feet and your business stands at the precipice. People can’t come to work. The client will not appear at the meeting in the office. Uncertainty comes into play, and yet nothing could have surprised you.

COVID-19 is one of the most recent examples illustrating the issue of the black swan in economics. Over the years, we have been dealing with several events whose consequences for the business world can be measured on a similar scale. Why do we still feel confident in the market and in our reality?

The black swan theory – what is it?


The black swan theory emphasizes, above all, the power of the unpredictable. The reality that surrounds us is changing so fast that planning on the basis of historical data can become completely useless. This is what emphasizes Nassim Taleb, the author of the Black Swan Theory. In his book “Black Swan. On the Effects of Unpredictable Events” he reveals the scale of consequences of what is unexpected.

What is a black swan? What’s going on? According to Taleb, it has three distinctive features:

  • an unpredictable event,
  • with a huge impact on reality,
  • in the end, it turns out that it was predictable, and its explanation could have been found in the reality that surrounds us.

 

Black swans in the economy – over the last 50 years


In order to understand well what black swans really are in economics, it is worth analyzing what has happened in recent years. Below we present 5 examples of events, which could not have been unnoticed by no one:

  • 2000: Dotcom, or the Internet bubble
  • 2001: Attack on the World Trade Center
  • 2011: Fukushima nuclear disaster
  • 2016: Brexit
  • 2020/2021: COVID-19 pandemic

 

The COVID-19 pandemic has led to the closure of many companies that were not prepared for such a big crisis. Experts argue whether it is possible to call this event a black swan in economics. There have been voices that such large consequences of the pandemic result from negligence, for instance from allowing the Wuhan market to operate.

Despite this, the consequences of this event are so huge that it seems obvious to many experts that it is a black swan in the economy. The effects of the pandemic were the mass sale of securities and the crisis on the stock exchange.

Dotcom as a black swan – economy and modern technologies


Modern technologies are a great convenience for many of us. Thanks to them, we are able to overcome the limitations associated with COVID-19. We can contact our friends and continue to meet them without personal contact, that is, remotely, via the Internet. However, it should be emphasized that the same invention was, in 2000, the reason for the appearance of another black swan in economics. What are we talking about?

In the years 1995-2001, many companies from the IT and related industries were established. At that time, there was a boom in investing in this type of companies, which caused them to be overestimated. Many people decided to invest in companies that actually achieved little income and, consequently, collapsed. As a result, the “Internet bubble” was created.

One of the icons of the Internet bubble was Kim Dotcom (Schmidt), who bought the company on the verge of bankruptcy and announced that he would invest $100 million in it. As a result, the company’s shares rose by 300% and were then sold for $1.5 million. Eventually, the company collapsed.

 

Black Swan and Management – Why Does It Still Introduce Confusion?


Many entrepreneurs in Poland focus on long-term planning, looking to the future. We plan investments for many years ahead, forgetting about our plan B. Perhaps, you are also such an entrepreneur. The black swan in economics is such an unpredictable, surreal situation that we often simply ignore the possibility of this type of event occurring. Especially that they appear only every few years. When we manage to forget about the consequences of the last black swan, suddenly another unpredictable crisis happens.
 

How to prepare for black swans in economics?


One of the most important tasks is to appropriately place our financial resources and savings. It may be a good solution to invest funds in financial instruments that are resistant to crisis. In addition, long-term planning and skillful use of economic information can become key abilities in the face of threats such as black swans. Economics requires analytical, common-sense thinking. Based on the actual situation, we are able to develop not only the current action plan of the company, but also an alternative in the case of unpredictable events.

SGU will help you take care of business security. Our team consists of specialists who will conduct business intelligence for you. Obtaining and analyzing information from the industry in which your company operates will allow you to realistically define the plan and make rational decisions. Remember that the key to success is also to identify risks and reduce them.

Learn more about our offer: Business security and business intelligence!

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