The black swan theory was developed by economist Nassim Nicholas Taleb in 2007 to describe the impact of randomness on daily life and human disciplines like economics. Related: Understanding Economics: Definition and Application Why was the black swan theory developed? The system appears to remain strong and reliable, but builds up tension, and the collapse of that tension is a black swan event. Because the system does not have to recover from minor losses that those risks would cause, it becomes fragile and vulnerable. The desire to see logic in complex domains encourages people to invent explanations for black swan events afterward, which is called "hindsight bias."Įconomic black swan events happen when a system is suppressing risks with regulations or other methods. Black swan events are the events in complex domains that are so unpredictable that models didn't account for their existence at all until they happened. In complex domains like economics and politics, outcomes depend on human behavior and rationality, so models are less accurate. In linear domains like math and physics, factors interact predictably and models can forecast outcomes accurately. The black swan theory divides all fields of study into two types: linear domains and complex domains. They are called "black swan events" because the discovery of black swans in Australia was unexpected and had an enormous impact on the field of zoology. They have a huge impact, and they prompt historians and economists to create explanations for how they could have been predicted or how they follow from other events. Related: What Does an Economist Do? Duties and Work Environment What are black swan events?īlack swan events are global events that are so rare that normal economic models cannot predict them.
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In this article, we discuss what a black swan event is, some recent examples and how to identify them. Learning the characteristics of a black swan event can help you understand recent economic history. Economists use the term for events that economic models couldn't predict. The term "black swan event" describes events with catastrophic results, like the collapse of a currency or a huge stock value loss.
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