Each of these event categories and experiences is exposed to significant potential “Black or Gray Swan events” that could affect positively or negatively the way that they do business. Nassim Nicholas Taleb first suggested the term in 2001 in his book, ‘Fooled by Randomness’. The most common definition of a Black Swan is: an event in which the probability of occurrence is low, but the impact is high. 6 Respecting the Grey Swan Defining the Grey Swan 1 Statistical analysis is great. Every black swan event must: Grey Swan Guild — News Wrap Edition: #21 of Vol. In 2007, he expanded on the concept in his better-known book, ‘The Black Swan’. Like their better-known "Black Swan'' event cousins, "Grey Swan'' events can greatly impact firms; unlike Black Swans, which seem inconceivable before they happen, Grey Swans are known beforehand. 1. Following the success of Taleb’s early works “Fooled by Randomness” and “The Black Swan”, economists, strategists and statisticians coined a new term – the grey swan. A grey swan event that is probable and should be anticipated. An event that is a black swan to most people may be a grey swan to people with more knowledge of a system. (It will only muddle things further if we mention that apparently there are also grey swan and white swan events.) If we already know of a certain “risk”, it becomes a “Gray Swan”. These Grey Swan events are "unknown knowns" that are anticipated, discussed and warned about with increasing urgency, but the warnings are unheeded. Tail risk is a type of portfolio risk that exists when the probability of extreme events is underestimated. Whether it be a chronic illness or a tragic accident, most people get stuck with unexpected bills from time to time. Examples of Black Swan events include the First World War the rise of Hitler and the invention of the Internet. Now, imagine the impact of two grey swan events happening simultaneously, along with a black swan event. Many extreme events, such as the 9/11 attacks, the 2008 financial crisis and, most recently, the COVID-19 pandemic, are considered Grey Swan events because of the size of the impact and the many warning signs that were ignored. Any negative event along these lines can create a rolling, widening collapse—a true black swan—in the same way that the failure of a single transformer can collapse an electricity grid. A microscopic virus has brought the world to its knees. Don't feel bad if you've never heard of a "gray rhino." Oct 12, 2020 | Zolio Market Commentary. Black Swan: A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. The word Black Swan was popularized after the meltdown that resulting after the Financial crisis of 2008. Here we define “grey swan” to mean an event which is expected on the grounds of natural variability but is not within the observational record. For example we know that a plane crash is unlikely to happen, the chance is minimalistic. Prof. David Snowden‘s Cynefin framework helps one acquire some orientation in what kind of environment one is operating and how to approach decision-making under different levels of uncertainty.. For example, simple and following established best practice, complicated and requiring … Have the Black swan events are characterized by their extreme rarity, their severe impact, and the widespread insistence they were obvious in hindsight.’. He described a black swan as an extremely unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Such unexpected events often signal their arrival far in advance. The owner of SamProjects approached Grey Swan to design a brand new website presence … The researchers call these potentially devastating storms Grey Swans in comparison with the term Black Swan, which has come to mean truly unpredicted events that have a major impact. The incident may better align with the coined term “gray rhino” – a threat on markets that was predictable yet ignored until too late. The problem of the Black Elephant in the room is that the room is already the planet. In other words, it was unpredictable. Think California wildfires, a hurricane … A grey swan is a highly probable event with three principal characteristics: it is predictable; it carries an impact that can easily cascade; and, after the fact, we concoct an explanation that recognizes the probability of occurrence, but shifts the focus to errors in judgment or some The corona pandemic: a white swan, not a black swan. Credit: Flickr/Wikipedia ... a grey rhino maybe an example of known knowns. We discuss how real world Grey Swan scenarios are excellent choices for stress and resiliency testing. Conversely, the economic shutdown was a great example of a black swan. Because there is a slight chance the event will occur it should be anticipated, particularly as it could shake up the world, economy, and stock market” ‍ ‍Source: Investopedia The current COVID-19 pandemic is a characteristically perfect example of a black swan event. We probably could/should have known a global pandemic was a distinct possibility. We all may remember the book “The Black Swan” by Nassim Nicholas Taleb of 2008 which talks about the impact of highly improbable events. In order for an event to be considered a black swan, Taleb listed three elements (or attributes) that the event must possess. The report draws attention to cognitive biases and explains how ambiguous and uncomfortable data are easy to ignore, how the impact of Grey Swan events is substantial and enduring, and how value recovery is a function of critical pre- and As the U.S. steadily emerges from the pandemic — and we all hold out hope for India — the temptation is to dismiss it as a one-off, a once-in-a-century health disaster, a black swan. Contrary to the low-probability black swan, the grey rhino is a high-impact, high-probability event usually ignored for various reasons. According to Taleb, a Black Swan event has three attributes: At best, one can probably get away calling it a "Grey" swan—a known-unknown. The theory of Black Swan events was developed to categorize non-predictable, high-impact events. A Gray Swan is a term used to describe a potentially very significant event that is considered unlikely to happen but still possible. Many extreme events, such as the 9/11 attacks, the 2008 financial crisis and, most recently, the COVID-19 pandemic, are considered Grey Swan events because of the size of the impact and the many warning signs that were ignored. Hence, organizations need to prepare for and manage grey swan and black swan events through a risk-based approach, where risk is a function of the likelihood of event occurrence and the resulting consequences. In this case, a plane crash is a Gray Swan event. Dragon king (DK) is a double metaphor for an event that is both extremely large in size or impact (a "king") and born of unique origins (a "dragon") relative to its peers (other events from the same system). Because there is a slight chance the event will occur it should be anticipated, particularly as it could shake up the world, the economy, the … But only when there are sufficient data to establish prior probabilities, a robust predictive model and an understanding of what may be considered “the norm”. For most organizations, the likelihood of a Grey Swan event occurring is greater than preparation for it. It is about actively seeing what’s in front of us and challenging ourselves to act,” Michele Wucker wrote in “To avoid the next pandemic, you need to know the difference between a black swan and a grey rhino,” published in The National April 23, 2020. A contemporary example is a 1,000 year flood or 9/11. Examples given of the Black Swan are the First World War and the October 1987 stock-market crash. But by imagining these risk scenarios, we can at least prepare for them should they erupt. Don't feel bad if you've never heard of a "gray rhino." If COVID-19 is no black swan. Increasingly, he said, extreme weather and climate change must be regarded as "gray swan" events, meaning some clues to the event exist that may evolve with data and analysis, but … We are made up of established experts, rising stars, and impassioned agents for positive change across 30+ countries from many professional domains, and demographics. Grey Swans are highly unlikely, the researchers said, but they can be predicted with a degree of confidence. The Black Elephant in the Room is, therefore, the result of the sum of the two possibilities and of the two concepts. I would argue that Covid-19 was a gray swan. A “black swan” refers to a hard-to-predict event that deviates from the norm and can have catastrophic ramifications. They aren't even our base cases. Although the term had been floating around for a while, the phrase “Black Swan Event” only recently reached general usage. Give me some context The Colonial Pipeline attack is just one case where the underinvestment in security and infrastructure was exposed. These often lead to significant improvements in risk management frameworks that can transform extreme risks into manageable ones. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence. But their close cousin – grey swans – can enter our imaginations. For each of these synthesised storm events, we simulated storm tides and waves in the North Sea using hydrodynamic models that are routinely used in operational forecasting systems. This is a complete fallacy. Other examples of grey swan events are population growth, climate change, a stock market crash, and Brexit. A black swan event results in severe and widespread consequences. I would argue that Covid-19 was a gray swan. •Important to understand that small, random events can have enormous consequences •Examples: •Gore vs. Bush •Archduke Ferdinand’s driver made a wrong turn in 1914 •Lt. Grey Swan Guild — News Wrap Edition: #21 of Vol. The grey rhino, a term coined by Michele Wucker, is a cross between black swans and elephants in the room. It’s arguable if COVID-19 is truly a “black swan” event—something that was unpredictable with profound consequences on the global economy. The appearance of the Black Swan event was an Outlier because it could not be predicted or expected, to carry Extreme Impact and to carry Retrospective Predictability in that we naturally after the event develop explanations for them. Established in 2004, they have helped an extensive list of clients realise their big event, providing a simple kit hire or a full project solution on all fronts – and everything in-between. For most organizations, the likelihood of a Grey Swan event occurring is greater than preparation for it. “Unlike the black swan that appears only in hindsight, grey rhino theory is forward-looking. These are a series of stories and headlines we are tracking in the Grey Swan Guild’s Global League of Sensemakers Newsroom. Setting 2008 as the base case example, Taleb argued that Black Swan events are almost impossible to predict yet have far-reaching consequences, therefore, people should always assume that a Black Swan event would take place & plan accordingly. Classifying Black Swan Events. Black swan events are more like gray swan events – they are happening more often and in more areas. A black swan event is unpredictable. To be classified as a Black Swan event, one must be completely unexpected. An example would be a person who lives in the desert insuring against flooding or … He refers to “gray swan events” as large macroeconomic or social events that severely disrupt society, such as the global financial crisis of 2008. Fractals can help turn black swan events into grey swan events and make them imaginable, if not entirely predictable. Because Black Swans are, by definition, unpredictable, we’re better off preparing for the widest range of contingencies than predicting specific events. If you live long enough, you are likely to face some sort of healthcare crisis or another. Grey Swan Events from the Past 20 Years. Unlike their cousins, grey swan events are possible and knowable, even though they may be regarded as unlikely. The Grey Swan Guild Founded in April, 2020, the Grey Swan Guild is a community of sensemakers that acts as an action-based think tank rising to the world's biggest challenges. Established in 2004, they have helped an extensive list of clients realise their big event, providing a simple kit hire or a full project solution on all fronts – and everything in-between. (2006). A grey swan (alternately, gray swan) is a term for events that can’t be predicted but can be imagined. It can also refer to an event that’s unlikely but possible. The term was popularized by Nassim Nicholas Taleb in the book Black Swan. We probably could/should have known a global pandemic was a distinct possibility. Summary: We as an industry need to learn to prepare better for grey swans -- rare but very possible events -- both for our own sakes and for our clients. Examples include, the 2008 Global Financial Crisis, Japan’s Tsunami and Fukushima Daiichi nuclear disaster, terrorist attacks like 9/11, and the 2019 Christchurch shootings. The invention of the computer, 9/11 attacks and the First World War are examples of Black Swan events. It includes the founding of Islam, the invention of the computer, the oxford English dictionary, the attacks of 9/11, the Harry Potter books, an… Examples: The September 11 attack; the emergence of Bitcoin. We use statistical analysis of a company’s history and peer-group to anticipate gray swan events and price their likely impact. Like black swans though, their impact can be huge. The Gray Swan By Leo Melamed Peking University Beijing, China April, 12, 2009 There are some people in the financial world claiming that the colossal global meltdown that has occurred in financial markets is an example of a “Black Swan” event. These are low probability, high impact events that few expect. Black swan events are the unknown unknowns that no one can even envisage, let alone predict. Morales credited atmospheric and climate scientist Kerry Emanuel, who is affiliated with MIT’s Lorenz Center, with furthering the idea of climate change “gray swans.” They offer up … A "gray rhino" is a highly probable, high impact yet neglected threat: kin to both the elephant in the room and the improbable and unforeseeable black swan. Black swan events are characterized by their extreme rarity, their severe impact, and the widespread insistence they were obvious in hindsight.’. He specifically mentions things like the rise of the internet, the invention of the personal computer, and the Sept. 11, 2001 attacks as examples of black swan events. 1. It was the perfect storm – and practically nobody saw it coming. Why we should ignore the Gaussian bell curve? Grey Swans are long-tail risks, known but thought highly unlikely – and thus firms have often neglected to invest scarce resources to prepare for them. (It will only muddle things further if we mention that apparently there are also grey swan and white swan events.) Time and again, however, individuals and organizations stumble during this process—for example, failing to respond to obvious but neglected high-impact “grey rhino” risks while scrambling to identify “black swan” events that, by definition, are not predictable. Black Swan Definition and Misuse . He The owner of SamProjects approached Grey Swan to design a brand new website presence … Contrary to the low-probability black swan, the grey rhino is a high-impact, high-probability event usually ignored for various reasons. Grey swan reputation events have wiped out nearly $1.2tn in shareholder value over the past 40 years, and their impact is worsening and harder to recover from, according to a … Additional advanced material has been added as … Grey swan is a by-product of black swan, a term popularized by Nassim Nicholas Taleb in his best-selling book with the same title. Instead, it may be more appropriate to apply strategies devised for managing the consequences of Black Swans to low-probability, high-consequence Gray Swan events. In addition, we provide an example of a set of Grey Swan scenarios, which correspond to the RBC C-3 Phase II Wealth Factors of 2005 Bennet et al. Conversely, the economic shutdown was a great example of a black swan. Besides a pandemic, other grey swan events could include such things as a major cybersecurity attack, a significant climate incident, and a global war. Wicker 6 argues that the current pandemic is in fact a grey rhino. These events could be a corporate meeting, a trade show, conference, sports or music event, or even a wedding, Bar Mitzvah, or social gathering. Just google "Corona" or "Covid" in combination with the word "Black Swan" and there are a whole host of links that appear with many calling the COVID-19 crisis a "Black Swan event". … Grey swan is a by-product of black swan, a term popularized by Nassim Nicholas Taleb in his best-selling book with the same title. Every black swan event must: 1. In order for an event to be considered a black swan, Taleb listed three elements (or attributes) that the event must possess. My recent read of “The Grey Rhino ” by Michele Wucker looks very complementary to the Black Swan and in fact even to some extent challenges the very perspective of Black Swan events. Black swans have become ironically famous; once used as a metaphor for an unforeseeable and historically unprecedented event, black swan talk has become more common in finance than just about anything else. "Both against the 'black swan,' but also against 'gray rhinoceros,' all kinds of risk signs cannot be taken lightly," the paper said. 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