What Does "Black Swan Event" Mean?

In the days following the massive earthquake in Japan, various news organizations and blogs have been using the term "black swan event" quite regularly.

The earthquake in Japan, they say, was a black swan event.

So what does "black swan event" mean?

The term "black swan", as it applies to finance/economics, was popularized by Nassim Nicholas Taleb in his book "The Black Swan".

Black Swan - IllustrationWhen you think of a swan (as in the bird), what comes to your mind? If you are like most people, then you probably envision a graceful, white bird that floats on the water.

Most swans are white, but some, in fact, are black. The existence of black swans is a fact that takes most people by surprise.

Now letís apply this to the theory of "black swan events". A "black swan event", to start, is an unexpected surprise (just like the bird, the black swan). In addition, black swan events also have these traits:

1. They have a major impact on society.
2. People, in hindsight, contend that they were not surprised that the event took place.

So a "black swan event" is an unexpected surprise that has a major impact on society. In addition, people look back on the event and contend that they were not surprised that it took place.

Thatís a "black swan event".

Some examples of "black swan" events?

1. The creation of the Internet.
2. The earthquake in Japan.
3. The fall of Russia.
4. 9/11.
5. The financial collapse of 2008.

Definition of Black Swan Theory