Black Swan Event: Definition and Examples

A black swan event is an unpredictable and rare event with an extreme, paradigm-shifting impact on the wider world. Think of the September 11 attacks, the 2008 financial crisis, and other moments of sudden tragedy and panic that echo throughout history.

The name “black swan event” comes from the fact that actual black swans are rare. While white swans are common in nature, black swans are few and far between. In fact, until the seventeenth-century Dutch explorer Willem de Vlamingh first saw a black swan in Australia, people throughout the western world didn’t even think they existed.

Former Wall Street Trader Nassim Nicholas Taleb first crystallized black swan theory in his books Fooled by Randomness The Hidden Role of Chance in Life and in the Markets and The Black Swan: The Impact of the Highly Improbable.

The latter hit bookshelves in 2007, just before the Great Recession (a textbook example of a black swan event) began in earnest. Taleb’s books borrowed from the work of earlier philosophers, such as David Hume and John Stuart Mill, to make sense of how such improbable events could occur in the first place.

While each black swan event is unique, all such events share several things in common. Here are a few characteristics that define the concept:

• Extreme impact: To qualify as a black swan event, the occurrence must have severe consequences, usually on a global scale. These events are paradigm shifts, and they act as dividing lines in history. Nothing feels the same after as it did before.
• Rationalized in hindsight: In the wake of a black swan event, people rush to make sense of how such an unpredictable outlier could occur in the first place, much less destabilize the entire established order of things. These retrospective looks often turn up clues (hidden in plain sight) that such an event was inevitable. Still, they often only make sense as harbingers of doom in hindsight.
• Unpredictability: Nassim Taleb—a philosopher, former Wall Street trader, and the author of The Black Swan—insists the most notable aspect of these events is their near total unpredictability. It’s almost impossible to forecast an event like this before it happens. This makes it extremely difficult to prepare for one.

Black swan events can happen in myriad ways. Consider these four unexpected events that made deep impacts on history:

1. 1. The 2008 financial crisis: Throughout 2008, Wall Street suffered a series of shocks due to the unraveling of subprime lending practices. Stock prices plummeted, companies laid off workers in droves, and banks foreclosed on numerous houses. It took unprecedented amounts of government bailout money and additional help from central banks to keep the global financial system from collapsing.
2. 2. The dot-com bubble: In 2000, the valuation of numerous internet-based companies plummeted after half a decade of stratospheric growth. This led to a more general stock market crash, as well as the bankruptcies of various companies that appeared ironclad and undefeatable just a few months before the crisis.
3. 3. The September 11 attacks: On a fall day in New York City and Washington, DC, terrorist attacks destabilized the entire world and rewrote the nature of foreign policy in the United States. It also led to extreme market volatility in the immediate aftermath, with the stock market losing more than a trillion dollars in value over the following week.
4. 4. World War I: Prior to the First World War, the major European powers believed their many economic and military alliances would prevent war from breaking out on even a small scale. After the assassination of Archduke Franz Ferdinand in 1914, however, country after country became involved in what people of the time believed to be “the war to end all wars.”

Since black swan events are innately unpredictable, there’s only so much you can do to prepare for them. Practice risk management strategies in every area of your life, particularly in regard to your finances. Plenty of financial experts suggest diversification as one of the only investment strategies with a chance of staving off the worst effects of a black swan event. In other words, prepare for the worst and hope for the best.

Get the MasterClass Annual Membership for exclusive access to video lessons taught by business luminaries, including Richard Branson, Kris Jenner, Geno Auriemma, Robin Roberts, Chris Voss, Sara Blakely, Daniel Pink, Bob Iger, Howard Schultz, Anna Wintour, and more.