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From “Black Swans” to Risk Management The “Black Swan” – is risk controllable?

With a clear position on traditional risk analyses in particular from the financial sector, Taleb, now Distinguished Professor of Risk Engineering at New York University, analyses the power of the most unlikely events and their consequences. And now? Are the core subjects of Taleb’s eleven-year-old book on “Black Swans” still valid today? Are we still surprised by unlikely, impossible or unexpected events?

For centuries, Europeans have agreed on one thing at least: Swans are white. Until 1697, when something completely unexpected and unlikely actually happened and black swans were discovered in Australia. A single discovery rendered a piece of knowledge invalid, which had been firmly established through numerous observations. There is of course the debate about whether a black bird can actually be a swan – but we are not about to discuss the biology of poultry here. Rather, the emergence of the black swan is now used as a metaphor to represent extremely unlikely events. And these are more frequent than we think!

How the Black Swan led to the downfall of the turkey.

Der Schwarze Schwan – wird Risiko beherrschbar

In his book, Taleb uses another bird, the turkey, as a very succinct example for a Black Swan. The basic assumption here is that we learn from experiences and events from the past and draw our conclusions for the future from them. The same applies to the turkey: Day after day he’s brought food by friendly humans. Every day he becomes increasingly aware that these people are only doing him good and he expects the same to happen the next day. Until shortly before Thanksgiving when turkeys take their traditional place on the meal table. The arrival of the butcher is the Black Swan event for the turkey: it is a complete surprise, totally unforeseeable and brings with it extreme effects. Not from the butcher’s point of view, of course. For him this is a completely normal, expected event. So this raises the question of whether what we have observed is sufficient and enables us to tap into other elements of an issue.

We think ourselves safe – while the risk is increasing.

What is also disturbing about this scenario is that the turkey became increasingly confident as the amount of feeds increased. His growing experience from the past in principle strengthened his feeling of safety, although the day of slaughter grew ever closer. Generally speaking: the feeling of safety increases – but in reality, the risk of a fundamental change (Black Swan) is growing in the background. Taleb provocatively hits the nail on the head: “We mistakenly consider naïve observations from the past as something definite or representative of the future.”

Risk management status: Solutions asked the experts

Der Schwarze Schwan – wird Risiko beherrschbar_2

We spoke at length with Dr Alexander Mahnke, Chairman of GVNW, and Dr Fred Wagner from the Institute of Insurance Science at the University of Leipzig on the subject of the “Black Swan”, previously the main theme of AIRMIC 2018 in London,

about his research entitled “Risk Management in Industrial Enterprises”. See the separate article, including the one on scenario testing, vividly described by Sue Taylor, Claims Specialist at Miller Insurance Services LLP. All three topics make it clear that there is still a lot of potential and that, based on the results, it is worth attaching greater importance to risk management and using scenario testing to sharpen awareness and to increase the capacity for action within companies. We hope you enjoy reading.

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