> I’d like to ask you guys whether we are prepared for other black swans. Let’s start with a collapse of the electrical system due to solar flares or electromagnetic pulse attacks.
A Black Swan is a "high-profile, hard-to-predict, and rare event that is beyond the realm of normal expectations". But we know that the Carrington Event happened in 1859, and that it's only a matter of time before a big solar flare will affect Earth in the same way. So this is not a Black Swan.
But yes, we should prepare for foreseeable rare events.
Events like the Carrington & Covid seem to fit: high profile, hard to predict and rare. IMO, both qualify as Black swan.
At some point, you have to pick a threshold on the probabilities involved... These events are likely independent & identically distributed (i.e. hard to predict for any year), and I'd call sub-1% annual chance pretty rare.
But I'm receptive to a different threshold... But you can't just say "Black swan only counts for previously-inconceivable events".
Edit: I'm assuming covid-19 is structurally different than Sars, mers, Ebola, & H1N1 purely based on the global effect it has had to date. If you found those others as pandemics (not according to WHO though), then you can remove it as Black swan.
It's not a black swan because everyone with half a brain could say that there would eventually be a global pandemic respiratory disease. H1N1 was technically one, it just happened to be mild. We thought there was going to be one in 1976 and raced to vaccinate everyone against it. These things happen, like earthquakes. Nobody knows when, but if the San Andreas went tomorrow it wouldn't be a black swan.
Are any black swans going to be black swans in hindsight?
Did anyone anticipate it enough to put their money where their mouth was? A fortune, and a major service to humanity, could have been made by a private individuals stockpiling PPE in vast quantities.
You say anyone with half a brain anticipated it. I didn't. Did you buy 500k N95 masks and put them in a warehouse?
Knowing someone will happen is easy. I know for sure that a large meatorite will hit the earth and cause mass deaths and crop failure, but I have no idea in how many 100s, 1000s or millions of year it will happen. If it happens tomorrow it would be a black Swan *
* an example only, we would get plenty of advanced warning.
> Did anyone anticipate it enough to put their money where their mouth was? A fortune, and a major service to humanity, could have been made by a private individuals stockpiling PPE in vast quantities.
The response to this pandemic has actually worried me quite a lot on this front, because it seems likely now that anyone who stockpiled PPE at pre-pandemic prices and tries to resell during the pandemic at a price high enough to justify their initial investment will be accused of price gouging and possibly have their stockpile seized.
Which has the effect that nobody has an incentive to build a reserve of things that will be useful in a future crisis, even if that crisis is foreseeable.
So yeah, it's easy enough to say "I think there's at least a 5% chance per year of an event which results in at least 10 million people who will want to buy a portable generator" (which is 10x the amount normally sold in a year). I genuinely do think that's a true statement, and it would imply that the number of generators currently being produced would need to be at least 50% higher to meet demand averaged across all times rather than typical times, which is a pretty big difference in a pretty big market. Normally when you think you know something the market doesn't, you can bet against the market by investing in whatever the market is undervaluing, and if you're right you make money. In this case, I'm not sure how you would go about doing that. Investing in companies making generators doesn't increase production. Buying generators and leaving them in a warehouse risks your stockpile being seized in the case where you were right about the risk. I'm honestly not sure how I would go about putting my money where my mouth is here.
Even without the prospect of seizure, it's not free to maintain a stockpile, or maintain a short. So you're also making a bet that it will happen sooner rather than later- if it takes 100 years, your equipment will be rusted or obsolete and you'll probably be dead by then. And you'll have paid every year to maintain it, money you could have put into a slightly less risky and more liquid investment that would have long since paid out.
All the day-to-day costs and risks can just totally swamp the potential upside, even before the regulatory risk of seizure or being forced to sell your stockpile at pre-crisis prices. Price-gouging laws are already on the books, so it's not like it would be that much of a surprise.
The first one that comes to mind is the arrival of the Conquistadors, from the point of view of the locals. Even in retrospect, could they have any reason to believe it was possible? Well, not really, no. Invasion generally, maybe, but not from another hemisphere.
It has to be something that's just not accounted for in your worldview, something you couldn't expect based on anything you know about. A meteorite wouldn't be a black swan for us, but I think it would be for a society that hadn't discovered them yet. A meteorite strike on London circa 1800 would have been a black swan, because at the time people (Europeans, anyway) thought that shooting stars were atmospheric phenomena. Large rocks falling from the sky just wasn't in their cosmology.
Everyone knows that the stock market will eventually drop a lot, due to some crisis or other. It will happen, to a near certainty. But the cost of maintaining a short position long term will exceed the payout, that's why it's really hard to make money off short selling. Otherwise it would be free money every decade or so.
Stockpiling costs money, and it costs more money the longer it takes for your bet to pay out, just like a short. Masks expire, rubber perishes. You have to bet on the timing, not just that it will eventually happen. A 100-year event will take 100 years to pay out on average, so how much money can you afford to lock away in anticipation of something that might not happen in your lifetime? The opportunity cost isn't zero.
I can understand his frustration with our lack of preparation, but he's used the term black swan to describe economic recessions that were also predicted by many people.
Wikipedia says Taleb gives three criteria for black swan phenomena:
1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).
3. The psychological biases that blind people, both individually and collectively, to uncertainty and to a rare event's massive role in historical affairs.
Given these criteria, how could a San Andreas earthquake NOT be a black swan? (And by "San Andreas earthquake" I mean The Big One, not one of the many smaller tremors that occur all the time.) Because we know that, one day, The Big One will eventually occur? Or because we can prepare for it to some degree (though I'd argue there are magnitudes that The Big One could hit that even the most earthquake safe of buildings aren't prepared to endure in CA).
By your logic, I literally cannot think of a single candidate for a Black Swan event.
I've seen examples floated: World Wars, Rise of PCs or Internet, Chernobyl, September 11th, etc, etc. All of these possibilities were posited by smart people well in advance -- again, it's a matter of setting thresholds on the probabilities.
> These events are likely independent & identically distributed (i.e. hard to predict for any year), and I'd call sub-1% annual chance pretty rare.
Put another way, it seems reasonable to me that "no one alive has experienced it before (and probably not their parents either)" is a decent threshold.
A Black Swan is a "high-profile, hard-to-predict, and rare event that is beyond the realm of normal expectations". But we know that the Carrington Event happened in 1859, and that it's only a matter of time before a big solar flare will affect Earth in the same way. So this is not a Black Swan.
But yes, we should prepare for foreseeable rare events.