Chasing black swans

Author: Professor Rick Nunes-Vaz, Torrens Resilience Institute, Flinders University

Adopting the school of thought that there are no true unknown unknowns, everything that is possible/plausible is discoverable (if extremely unlikely) and therefore does not qualify as an unknown unknown, then we are adopting the view that every kind of event belongs to a distribution of characteristic events (e.g., hurricanes, earthquakes, improvised explosive devices…) from frequent (usually low severity) to infrequent (high severity).

Nassim Nicholas Taleb[1],  whose work focuses on problems of randomness, probability, and uncertainty, and who wrote the influential 2007 book ‘The Black Swan’, makes the point that Black Swans are not predictable from (limited) historical datasets, meaning  we do not  have enough data to know what the distributions actually look like.

In that view, Black Swans are simply the extremely unlikely events at the high impact ends of their potential behaviours, even though we might not have seen such extremes before.  For example, if I were a terrorist, the question is not ‘what kind of event can we create that’s entirely new and unexpected?’ – a Black Swan – something no one would think of. The essence of the Black Swan is in the high impact. Therefore, we might ask ‘what kind of event would create the possibility of killing more people than ‘9/11’?’ or ‘how could we generate an equivalently large economic or health impact?’ That kind of question sets the mind thinking quite clearly about high impact events and how they might be staged. We are not trying to think of the unthinkable, but how a particular high impact could be achieved. If we thought through the possibilities, and decided what would have to be put in place to achieve each one, we identify the precursors to look for and how our intelligence agencies might focus (some of) their efforts.

Of course, we could become fixated on chasing Black Swans of the many different types at the expense of doing the more routine intelligence and mitigation work. How should we balance these activities?

This is where risk management comes to the fore: risk management in the broader sense that includes efforts to build resilience.  However, it is  important not to invest in managing from the highest risk downwards until we run out of money, which is the approach implied by risk registers.

We need to take account of the risk reduction effect our investments will have. It is  unwise to chase mitigations for a catastrophic risk that could kill thousands,  an event of ‘9/11’ type for example,  if it would cost less to save equivalent thousands of lives by investing in the management of several smaller risks with similar cumulative effect (road accidents, chronic health issues etc.).

Building a portfolio view of investments for managing ‘all hazard’ risks is not a straightforward analytical task, but it is important and largely achievable. We should be careful not to push for gatherings of experts who essentially think through the problem ‘from scratch’ every time they meet, and consider that generating a ranked list is the objective of the exercise.

At the national level we need a coherent effort that progressively builds (and reviews) a more sophisticated and defensible assessment of how to use finite funds wisely.



Author biography

Professor Nunes-Vaz is currently working with the Torrens Resilience Institute, Flinders University, to improve understanding and awareness of the potential for cascades of failure through complex, interconnected infrastructures, particularly in terms of their occurrence within, and impacts on, the health sector. Rick is also co-authoring a book entitled ‘Risk Management & Analysis: for Wise Investment in Strategic and Homeland Security’ for CRC Press. His background includes leading the Defence Science & Technology Group’s research and provision of advice on strategic risk analysis for national security (re terrorism, crime, cyber, fragile States, malicious insiders, major event security etc) for the Defence Department and several Commonwealth Departments and Agencies. The work informed strategic priorities and allocation of resources.



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