Black Swan Event

Why in news?

• A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows to the tune of USD 100 billion from India in case of a major global risk scenario or a “Black Swan” event.

About Black Swan Event:

• A Black Swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
• These events are said to have three distinguishing characteristics:
  • They are extremely rare and outside the realm of regular expectations
  • They have a severe impact after they hit
  • They seem probable in hindsight when plausible explanations appear.

Origin of the term Black Swan:

• The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001.
• According to Nicholas Taleb, the past Black Swan events are:
  • The 2008 global financial crisis – triggered by a sudden crash in the booming housing market in the US
  • The fall of the Soviet Union
  • The terrorist attack in the US on September 11, 2001.
• On Covid-19, Taleb called it a “white swan” event arguing that it was predictable and there was no excuse for companies and governments not to be prepared for something like this.

PRACTICE QUESTION:

The term ‘Black Swan Event’, sometimes seen in news refers to:

(a) A process by which an entire body of water becomes progressively enriched with minerals and nutrients

(b) An ongoing extinction event of species during the present Holocene epoch

(c) An unconventional monetary policy suggested as an alternative to quantitative easing

(d) An unpredictable event that comes as a surprise and has a significant impact on society

                         D

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