Ever heard of the term 'Black Swan' which is often associated with something negative in the world of financial markets?
Black Swan is a theory that was introduced by Nassim Nicholas Taleb in 2001. He is a writer and former trader on Wall Street.
The Black Swan theory began to gain attention when he published the book The Black Swan: The Impact of the Highly Improbable in 2007, which is 6 years after he introduced the theory.
This theory introduces the Black Swan as symbolic for a random and unpredictable event that occurs in an economy, politics, society or nature.
This theory is named Black Swan because it is taken from the western society's belief in the existence of black swans that are rarely found or almost non-existent because they only know white swans.
However, that belief was disproved when a man in Australia found a species of black swan there.
However, that is not the main issue, rather it teaches us that sometimes the shallowness of human knowledge cannot reach the things that will happen in the future.
Black Swan events are difficult to predict due to the fact that the event has never happened or rarely happened before.
This causes most parties to be unable to control the situation or find it difficult to resolve issues that occur when an event occurs.
Therefore, Black Swan will leave a great impact on a country and the global world. However, the impact of Black Swan can be positive or negative depending on the situation.
An example of the positive impact from the Black Swan event is the development of the internet world which has benefited and connected people from all corners.
While the negative impact of Black Swan is like the events that happened on September 11 at the World Trade Center and the bankruptcy of Lehman Brothers.
Black Swan in the market involves a fall in the economic market.
The Black Swan theory has been developed based on three basic questions namely;
Why do rare events have such a big impact on history, science, finance and technology?
Why can't the scientific method predict the Black Swan?
Why is society unaware of the huge role Black Swan events play in history?
All those questions have their own answers which are;
Rare events have a major impact on history, science, finance and technology because they occur at such a low frequency. Therefore the event is difficult to deal with or control using normal solution methods.
The scientific method cannot predict Black Swans because such events rarely or never occur. So, the solution is difficult to make.
Society is not aware of the large role of Black Swan events in history because low frequency or rare events are often given less attention in the historical record.
The three main characters of the Black Swan theory are;
Events that occur outside of normal expectations (outliers).
An event that will have a big impact on society and the world.
An event that may have been expected to occur after another major event.
Among the Black Swan events that have happened in the economy are;
In 1998, the company Long-Term Capital Management (LTCM) lost 50% of their investment capital at the same time causing other companies that invested in LTMC to go bankrupt.
In 2001, the assets of The dotcom bubble experienced ups and downs after many investors started investing in technology companies.
In 2008, Lehman Brothers went bankrupt and the Federal Reserve (Fed) did not want to help give them financial support.
In the same year, Zimbabwe experienced the worst hyperinflation of the 21st century with a high inflation rate exceeding 79.6 billion percent. Such inflation is difficult to predict and it will further disrupt the financial system of a country.
In 2020, the world is in a pandemic phase due to the spread of the Covid-19 virus that has disrupted the global market and economy around the world.
