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How to live with the black swan

It is necessary to know that black swans are events with great strangeness, which are not expected, but have great effects on the way of life. Black swans appear in many areas, but are the most outstanding in terms of natural sciences, economics and technology.

In recent years we have witnessed a number of unexpected events that have had a profound effect on our way of life and our way of looking at things.

The theory of black swans was developed by researcher Nasim Nicholas Taleb in order to explain:

  • The large role of events that are difficult to predict, have great effects and are rare events that are beyond normal predictions in areas such as history, science, finance and technology;

  • Events that have very little probability to happen and events that are statistically significant;

  • Psychological unawareness of people about the impact of these rare events in terms of historical events;

It can be said that uncertainty is a central part of our lives. We humans as conscious beings try in every way to anticipate the events that could happen to us and to try to protect ourselves from uncertainty.

That is why we build models of ordinary behavior in nature and in our interrelations, in science and art, in economics and in philosophy.

But humanity is somehow psychologically convinced that all the events that happen to us are predicted by the models we have and that these events do not have a big impact on our lives. But the events that are characterized as black swans actually have a big impact on our lives and the world history, and are especially important because of the need to accept that uncertainty and unpredictability, chaos and coincidence are part of our existence and we must accept them.

We have to accept psychologically the situation that we can’t control everything and keep within the limits of the models we have built.

The black swan can be said to be a constant companion of our lives, and we can see that from the many events that have been characterized as black swans: the Asian financial crisis of 1997, the collapse of technological stocks since the 2000s, the attacks on September 11, 2001, the crisis of 2008, Brexit, Covid 19 pandemic etc. For an event characterized as a black swan, it also can be the sudden regulation of certain industries that will contribute to a huge decline in industries, if it meets the condition that this event has low probability and there is no possibility to be predicted. But the events that are most often talked about are events that have global implications, because the aforementioned crises and terrorist attacks have global implications and change the way of life to which we are accustomed.

The black swan generates a non-linear, quantum functioning in physical and social life, because the inability to fully predict the outcome of any situation is constantly shown, the large number of unexpected events that occur, the great implications they have on our lives and our daily physical and social action, which due to these events goes beyond the patterns that we have set ourselves as normal and as the only parameters of what is expected way of life.

But if we understand the quantum dimension of our existence we can see that our existence is just a network of probabilities and in that network there are events that are more or less probable, but that low probability does not mean that it is impossible to happen.

When we consider quantum theory, we can understand that our life in the physical sense goes beyond the realm of the predictable and the expected, and enters the realm of the unpredictable and the unexpected, where there are a number of events that each have only the probability of happening, and there is no certainty that it will necessarily happen in view of the physical world in which we live.

It can be said that the black swan teaches us that the world we live in is a quantum world, a world of probabilities and outcomes of multiple interconnected events. It teaches us that the world we live in is chaotic and that there is no guarantee that a certain event will happen, and the events are related to each other in a way of cause and reaction. But it is also important to note that normally the economy as a science tries to explain as much as possible, and to leave the possibility of unexpected events as less as possible, as most of these events occur and have negative consequences for the global economy and thus disrupt global financial markets and capital flows.

If there were a permanent black swan, the economy would not be able to function, because the markets could not get used to the volatility and uncertainty, and we are witnessing that today due to the great uncertainty and the large number of possible outcomes many people who possess assets are not ready to invest them. If the economy were to operate under the influence of a constant black swan, nothing could be done to prevent crises from occurring, thus disabling investment and leaving banks and other financial institutions without capital that they could borrow, and many of them would collapse due to a large onrush to repay the deposits of citizens, who in that case would not be able to bear the risk of the economy and would prefer to keep their assets independently in their homes.

With this, the security of the assets would be much lower and the crime rate would increase. Likewise, the financial markets would be devastated by this situation, due to lack of investment capital, primarily due to the uncertainty that investors and most people would face when trying to invest and are not ready to bear that risk in the economy. Therefore it is necessary to take the necessary measures to avoid excessive uncertainty in the markets in order not to de-motivate investors to invest.

If the black swan were permanent, then politics would also have a great negative impact. It would especially be displayed in terms of political propaganda and the way of convincing the population to follow certain set of measures in order the citizens to protect themselves from the uncertainty and the harmful impacts that uncertainty brings upon their lives, and especially the large number of unpredictable and negative events that can lead citizens to an unenviable situation. We can especially analyze this through the COVID 19 situation and the social distancing. If we lived in a time of constant black swan, then we would have to face the fact that a number of negative events would occur that are unpredictable and have a great impact on citizens and any strategy for their protection would be partially successful.

There are several strategies to prevent black swans in various areas, and the most common strategy is to use smart technology (artificial intelligence) to make models for predicting possible outcomes, but the most important thing is to make good regulation. If there is good regulation it would significantly reduce the number of possible events and any problem would be made more predictable and it would be easier for each country to deal with the risks.

Also in terms of personal lives it is important to make an effort to more easily adapt to situations, rather than it is important to make analyzes and predictions, because their accuracy is always partial. This is especially important if there is a constant black swan and complete inability for prediction of possible events that would occur, because it is quite complex to predict even in normal conditions.

To reduce these side effects, it is important to make adjustment strategies to each field, because in the case of the black swan, the prediction is particularly difficult and partial. However, by achieving good strategies and making efforts to improve responsiveness towards the environment and its effects, efforts can be made to improve life even in conditions of constant black swan and constant unpredictability and a number of negative events.

Written by Zarko Spasov, 3rd year student of Business and Administration at Euro College of Kumanovo (Republic of North Macedonia).

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