Black Swan Mania: Using Buzzwords Can Be a Dangerous Habit

It has been a viral epidemic culminating with the economic recession.

We are referring to the use of the term “Black Swan”.

Of course we are not talking about the Tchaikovsky ballet, or the recent related movie, but to the Black Swan Theory which refers “to unexpected events of large magnitude and consequence and their dominant role in history”.

The theory was developed by Nassim Nicholas Taleb to explain, for example:

1. The disproportionate role of high-impact, “hard to predict, rare events” that are beyond “normal expectations”
2. The non-computability of the “small probability” of these “rare events” using scientific methods.
3. How, after the fact, the event is rationalized by hindsight. (we will get back later on this one)

Lists of what is considered by various authors as Black Swan have appeared all over the media in the aftermath of the 2008 economic recession.

We are showing one list, among many, below, as an example:

• 2001, attacks on the World Trade Center and Pentagon;
• 78% decline in the Nasdaq;
• 2003 European heat wave (40,000 deaths);
• 2004 Tsunami in Sumatra, Indonesia (230,000 deaths);
• 2005 Kashmir, Pakistan, earthquake (80,000 deaths)
• 2008 Myanmar cyclone (140,000 deaths);
• 2008 Sichuan, China, earthquake ( 68,000 deaths);
• Derivatives roil the world’s banking system and financial markets;
• 2008 Failure of Lehman Brothers and the sale/liquidation of Bear Stearns;
• 30% drop in U.S. home prices;
• 2010 Port-Au-Prince, Haiti, earthquake (315,000 deaths);
• 2010 Russian heat wave (56,000 deaths);
• 2010 BP’s Gulf of Mexico oil spill;
• 2010 market flash crash (a 1,000-point drop in the DJIA);
• 2011 Surge of unrest in the Middle East; and
• 2011 March earthquake and tsunami in Japan.

In the next parts (there will be two more), we will discuss why this list is MISLEADING, WRONG, and using “Black Swan” as

A BUZZWORD CAN BE A VERY DANGEROUS HABIT.

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