Black Swan Event

Black Swan event is a large-impact, hard-to-predict, and rare event (ie. statistical outliers) that:

• are beyond the realm of normal expectations;
• serve a large consequence;
• play a dominant role in history.

Identifying a Black Swan Event:

1. The event is a surprise.
2. The event has a major impact.
3. After the fact, the event is rationalized by hindsight, as if it had been expected.

Coping with Black Swan Events:

In Nicholas Taleb’s 2007 book The Black Swan, he argues not to try to predict Black Swan events, but to build robustness to the negative ones, while being able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond that predicted by their defective models. Taleb considers that a Black Swan depends on the observer. A Black Swan surprise for the turkey is not going to be a Black Swan for the butcher—hence his idea is “to avoid being the turkey” by finding out where one may be exposed to be a turkey—and “turn Black Swans white”.

http://en.wikipedia.org/wiki/Black_swan_theory