Black Swan Theory

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Image:The-black-swan.jpg
The Black Swan Theory or "Theory of Black Swan Events" was developed by Nassim Nicholas Taleb to explain:

1) the disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology,

2) the non-computability of the probability of the consequential rare events using scientific methods (owing to their very nature of small probabilities) and

3) the psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs. Unlike the earlier philosophical "black swan problem", the "Black Swan Theory" (capitalized) refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vast vastly larger roles than regular occurrences.

You may want to watch The Black Swan video. Keep in mind this author has created cognitive dissonance in the mind of many economists, since he considers their mathematics to be bunk. His math is considered politically incorrect because if his theories are true, the entire field of economics and almost every model of economic forecasting should be disbanded,
Also See Russell Wright

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