Black Swan Event

A black swan occurrence is distinguished by its exceptional rarity and catastrophic effect. Nassim Nicholas Taleb, a writer, finance professor, and former Wall Street trader, created the phrase.

Taleb discusses the concept of a black swan event in his 2007 book: an occurrence that is difficult to anticipate but has devastating repercussions. According to him, these situations are exceedingly unusual and unpredictable, which is why people should always be prepared for them and plan appropriately.

According to Taleb, a black swan is an event that is so rare that even the likelihood of its occurrence is unknown. The incident has three primary components:

  • When it does happen, the results are terrible.
  • Only in retrospect can it be explained.
  • Observers are eager to explain what happened after it happened and speculate on how it may have been foreseen before it happened.

The Black Swan Theory, also known as the Theory of Black Swan Events, may be traced back to the 2nd-century Roman poet Juvenal, who described something as a "black swan event" as "in Terris nigroque simillima cygno rara avis." This Latin term translates to "an odd bird in the countries that resembles a black swan." When this aphorism was first said, it was considered that black swans did not exist.

A black swan event in the financial (& cryptocurrency) markets is very unfavorable, resulting in widespread destruction and notoriously unexpected outcomes. The most well-known example of a black swan event in finance is the 2008 Global Financial Crisis, which was precipitated by the sudden, catastrophic collapse of what had previously been a thriving housing market.

The world is currently witnessing and recuperating from one of the most stunning examples of a black swan event. Taleb's prerequisites for this occurrence are met by the novel coronavirus, also known as COVID-19. The epidemic attacked without warning, and it became evident quickly that no country was prepared to deal with it. Nobody knows when a black swan incident will occur, and no one can foresee spotting a black swan among a flock of white ones.

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