In 2007, Nassim Nicholas Taleb authored a book titled ‘The Black Swan: The Impact of the Highly Improbable.’ In that book, he talks about the impact of events that are so rare and unpredictable that they could be outlier elements. The book discusses how humans tend to find simplistic explanations after the event in an attempt to make it rational and predictable.
When Coronavirus first started spreading outside China, the book gained further notice, and the internet was abuzz with the idea that Coronavirus was an outlier element, and therefore, a black swan. But, is Coronavirus a black swan event? TL;DR: no, it isn’t.
Despite everything that seems obvious, coronavirus-induced pandemic and the subsequent economic crisis are mere white swan events — events that we can predict well in advance. While much of the world is talking about how countries are addressing the issue, some segments of the population are discussing whether we could have predicted this event.
Why is COVID-19 not a black swan event?
In his book, Taleb discussed three attributes for an event to be counted as Black Swan.
The event is beyond expectation
Assigning probability and risk
Has an extremely high impact on society
Humans attempt to explain the event afterwards
The Event is Beyond Expectation — No One Could’ve Predicted It.
Whether predictable or not, the problem with normalising an event like COVID-19 as predictable and white swan is that we tend to reject the pandemic’s inevitability. When we do that, we not only reject the possibility of future pandemics but also fail to plug structural fallibilities in the system and the risks they pose.
Besides, this event was hardly unpredictable. For years preceding this event, experts have been trying to warn that, given the current state of globalisation, interconnectedness, and the focus on healthcare, the world isn’t ready for a pandemic. Bill Gates, in a TED talk, has spoken about a possibility. Ed Yong, in The Atlantic, has questioned whether America was ready for another pandemic. As early as 2019, Raghuram Rajan, the ex-governor for RBI, found the economic slowdown as worrisome and stated that the government should take proactive measures to revive the economy.
There is no dearth of professionals who have issued warnings months in advance about the possibility of a pandemic or an economic recession. The problem isn’t that there isn’t enough data. The problem is that the decision-makers were too complacent to act on it. Labelling COVID-19 as a black swan is convenient because, if done so, the onus shifts from the decision-makers.
The belief in black swan events is based on a delusion that we could have taken proactive measures to contain the event had we known in advance.
Assigning Probability and Risk
Assigning probability and measuring risks involved in identifying systemic weaknesses transcends industries and disciplines. It is easy to get caught up in the idea that rare and improbable events — called fat-tailed statistical distributions — are not common.
Ever since Taleb coined the term in 2007, people have misunderstood and misappropriated the term for so many events that are otherwise not black swans or are white swans. Taleb himself, in a video, expressed his frustration that people were calling COVID-19 a black swan event when, in January 2020, he authored a paper advising governments to act quickly to prevent a global pandemic. According to him, Coronavirus induced pandemic, and the subsequent economic crisis is not a black swan at all. There was information galore about its arrival.
But, terming the event a black swan takes the focus away from other more important elements in risk analysis. National dynamics and cognitive biases in the decision-makers can make fat-tailed distributions seem unpredictable or uncommon. Several risk analysts, and Taleb himself, have advanced a proposition that these high-impact events are more common than one might venture to think.
While the probability of an event happening in the shorter term (half a year, or a year) can be small, the chances increase exponentially when taken over a longer duration (30-50 years). WHO, in a 2018 study, assumed that the chances of a pandemic happening were 1 in 100. But, taken over a 50-year period, the chances increase to as much as 40%.
Has an Extremely High Impact on the Society
If there are systemic issues that are skewing our data predicting the next pandemic, then the issue is less about accurately predicting the next negative event and more about being prepared to absorb the shock from such events. In other words, it is not about the number of predictions we can get right, but building our ability to turn black swans into white swans when they happen.
In our highly networked world, the chances of another pandemic will only increase further.
Then again, sometimes, the problem is being able to sort through the available information effectively. In large economies, putting together the relevant information to fix cognitive issues can be difficult. Sometimes, even when the decision-makers have information available, different motivations can come in the way of timely action.
The important question here isn’t why governments across the world failed to anticipate it given the information, but why they were slow to act on the information despite several experts’ warnings.
If this pandemic has shown us something, it is that, despite the warnings about the pandemic’s cascading effects, state actors underestimate the risks for their own reasons.
There is no denying that the virus has a detrimental effect on the economy. At the time of writing, 924k people have died from the virus. However, to say that COVID-19 has an extremely high impact, we must compare it with something else that we know has caused significant human losses. One great comparative item is the Spanish Flu in the early 1900s which had a death toll of 18 million.
While economically, this is worse than the 2008 crisis, it had been brewing for a while. Many analysts have been expecting for many years that the market was due for a correction because the longest bull run in history oversubscribed it. Combine the fact that we knew this would happen and how it happened; hardly the worst crisis history has ever seen.
There is no doubt that this crisis has a detrimental impact on people, and will continue to do so.
Humans Attempt to Explain or Rationalize the Event After the Crisis
Nobody is trying to normalize this event. Everyone agrees that it was arbitrary. Some have even gone to the extent of propagating conspiracy theories about the virus’ origins. Then again, there are three questions that we need to ask before explaining the pandemic away
- Who is qualified to normalise the event?
- Does such normalisation sufficiently explain the casual dismissal of the event?
- How can we know if such normalisation is legitimate?
Fortunately, enough people are talking about how this virus is arbitrary. Besides, the evidence is too rock-solid to dismiss as mere attempts to brush off the current crisis by normalising it.
Additionally, humans have a propensity to normalise events after they have happened — called hindsight bias. In such a case, does this attribute fully justify labelling an event as a black swan? The simple answer seems to be a no.
Conclusion
Taleb’s book intended to help us absorb the shocks that negative events create. It wasn’t meant to act as a guide to predicting the turns in an economy. Calling COVID-19 a Black Swan event effectively dismisses our assumptions of risk analysis. Rather than push us to remodel our frameworks better, such a label pushes us into complacency because we can’t reasonably predict black swan events.
Even though the title of Taleb’s book is “The Impact of the Highly Improbable”, Coronavirus is far from rare. History is replete with so many events that could’ve been construed as black swans contemporarily. We also had enough information to consider proactive measures. We just didn’t.