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Climate change, robots, inequality, natural disasters and societal upsets: the last decade has seen an exponential increase in the number of "black swans" – a phrase coined by Nassim Taleb to describe unpredictable events that make the world hard to understand. How can we prepare to cope better with whatever comes next?

Taleb doesn’t recommend doing nothing in the face of ever more frequent and violent risks. On the contrary, he says we need a better understanding of what risk management can and cannot control. Rather than trying to predict the catalyzing event – which is an unrealistic goal – Taleb argues that you should make your business more robust to give you greater flexibility.

Why we ignore what is impossible

Taleb was the first to use the term “black swans” in the early 2000s to describe low-frequency events with high impact, drawing on the twin connotations of improbability and exceptionality. The term reflects the way Taleb sees our usual modes of thinking in a crisis situation. The author highlights our widespread tendency to underestimate and misinterpret these types of rare events, because we want to carry on believing in a “world that is structured and intelligible and, it follows, predictable”. Accepting the fact that it is impossible to forecast a great number of events is the first step of effective risk management.

A black swan is a traumatic event that creates psychological barriers. The principal risk associated with such events is that you will blind yourself to the dangers. The first step in facing the challenge is to become aware of the biggest pitfalls:

• Misperception of risk : “It could never happen to me” syndrome.

• Psychic numbing and disaster fatigue : everyone has a limit to what they can handle before their mind “shuts off”

• Failure to learn from past disasters: the tendency to discount past unpleasant experiences

• Short-term thinking : short-term gains blind people to long-term implications.

How can you avoid self-inflicted disasters?

Excerpt from Business Digest N°305, April 2020

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