Definition
Coined by Nassim Nicholas Taleb, black swan events are highly improbable, have enormous consequences, and are retrospectively explained as if they were predictable. Financial models based on normal distributions systematically underestimate black swan risk. Examples include the 2008 financial crisis, 9/11, COVID-19, and the 1987 crash.
lightbulb Example
The 2008 financial crisis was a black swan: most models assigned near-zero probability to nationwide housing price declines, cascading bank failures, and a 50%+ stock market drop. Afterward, pundits explained it as "obvious in hindsight."
verified_user Key Points
- Rare, high-impact, and rationalized in hindsight
- Normal distribution models are blind to them
- Nassim Taleb coined the term
- Anti-fragile portfolio design can benefit from black swans