In recent years “Black Swan” has been a concept used to describe events that are impossible to predict or even imagine. The word is coined by a mathematician, Nassim Nicholas Taleb, who describes a Black Swan event as having the following characteristics:
1. Impossible to predict
2. Creating shocking and severe impacts
3. Predictable in retrospect
In the Thai context, we can say that the 2004 tsunami was a Black Swan event because it was almost impossible to predict. We did not know when an earthquake would strike – and the consequential Andaman Sea tsunami was impossible to imagine in an area that tsunamis rarely ever hit. The causes and possible risk mitigation were understood as predictable after the event had happened. But a Black Swan event can also be a positive one, winning the largest lottery jackpot is one such example. Still, positive events are not of our concern, it is the crises that need attention.
But not every crisis can be defined as a Black Swan. Hurricanes in the USA are a crisis but not every hurricane is a Black Swan (since they happen on quite a regular basis) but Hurricane Katrina was a Black Swan since it wreaked havoc to an unimaginable, severe degree. A Black Swan is a game-changer that has far-reaching impacts.
To understand risks associated with Black Swan events, we can see risks as a spectrum:
1. The Knowns which are predictable and regular events such as floods that happen almost every year.
2. The Known Unknowns which are the risks that could happen but are challenging to predict its severity such as an earthquake.
3. The Unknown Unknown which are the unpredictable and unimaginable risks, in other words, the Black Swan.
What does the Black Swan have to do with policymakers? Is there even anything we can do in the face of the unpredictable?
Unpredictability is not synonymous with unpreparedness. The least policymakers can do is to take this awareness that there are Black Swan events in this world. By using the Black Swan concept to expand imagination and be prepared for the unthinkable, policymakers can be more deliberative when creating policies.
Green (2011) proposes the following strategy which policymakers can use to prepare and manage a Black Swan event:
- Survivor strategy This is to focus on what happens in front of you by relying on facts, statistics, and neutrality.
- Response team Managing risks depends on effective collaboration and multidisciplinary expertise. Setting up a response team in the face of a crisis is indispensable.
- R&D perspective Do not underestimate research and development. This is what helps you see various possibilities, and most importantly, solutions.
- Risk agility Accelerate agility when managing risks by constantly updating on newly-arised situations and information.
- Optimise communication Swift, accurate, and reliable communication is a key to risk management and decisions.
Last but not least, policymakers may need to adhere to the mantra “ignore the naysayers, it is possible to prepare.”