Black Swan Theory

The black swan theory refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations.

A "black swan" is an event which has a very small probability of occurring, but if it does, has very serious consequences. We all have experied this, right? Like running stoplight in the middle of the night when there are no cars around? Passing on the right, etc. They may get us a small gain in time or convenience or in boosted ego but might end up in an accident. Put enough black swans in the room, and we're sure to have a catastrophe.

Here's what Wikpedia says about it:

The theory was described by Nassim Nicholas Taleb in his 2007 book The Black Swan. Taleb regards many scientific discoveries as black swans—"undirected" and unpredicted. He gives the rise of the Internet, the personal computer, the first world war, as well as the September 11, 2001 attacks as examples of Black Swan events.

The term black swan comes from the ancient Western conception that 'All swans are white'. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass. Taleb notes that John Stuart Mill first used the black swan narrative to discuss falsification.

This has implications for entrepreneurs. We're always having to make decisions, and we have to take risks. Examining situations in terms of the possible consequences of each option, it's important to look at what the likely consequences are of improbable events which, if they happened. Of course we can't run our lives by all the things that could happen. And we can't foresee every lilttle thing. But we can look at our entreprise on a daily basis and come up with contingency plans for the worst possible events and know what we would do if they did happen. For example, what if we had no sales for a year. What's the fall back?

What do you think about this? I'd like to know. Post a comment.

Entrepreneurship informs all my professional activities. For entrepreneurial real estate, go to www.yourstopforrealestate.com/blog and for entrepreneurial writing go to www.kearneymusicschoolmurders.com.