From a FAIR™ Institute Perspective, COVID-19 Isn’t a Black Swan. It’s a Gray Rhino
“Coronavirus is the black swan of 2020,” says a recent statement by Sequoia, the prominent venture capital firm, repeating a buzzy term that’s being widely circulated to describe the current pandemic crisis, as it was to describe the financial crisis of 2008.
Nassim Nicholas Taleb defined a black swan event in his 1987 book The Black Swan: The Impact of the Highly Improbable as an outlier “outside the realm of regular expectations” with a high impact and for which “human nature makes us concoct explanations” after the fact.
But here’s the problem for risk analysis, as FAIR™ Institute San Francisco Chapter Chair Tony Martin-Vegue wrote in a post for our blog Black Swans in Risk: Myth, Reality and Bad Metaphors: The black swan concept “is well beyond something that would be found in a risk register…It’s an oxymoron to include this term in a risk program or even use it to describe risks.”
Still, “It’s become a generally accepted word to describe low probability, high impact events. Is there something better?”
Yes, writes FAIR Institute President Nick Sanna in a LinkedIn post. “The coronavirus pandemic isn’t a ‘black swan.’ It’s a gray rhino. The mainstream media is starting to realize the difference between the two: a rare, unpredictable event with serious and unavoidable effects versus a highly probable, high impact yet neglected event.”
In The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore, author Michele Wucker argues that what was often explained away as a black swan was in fact a predictable crisis, huffing and stamping its feet like a rhino about to charge.
No, the coronavirus pandemic wasn’t an ‘unforeseen problem’ Wucker writes in The Washington Post. “We have seen both financial crashes and pandemics many times before and know they will continue to occur. If you cannot picture another one coming, you are willfully blind…Mostly the [black swan] metaphor has been a justification for inertia and inaction in face of expert warnings.”
In other words, “black swan” has become the language of FUD – fear, uncertainty and doubt – while “gray rhino” defines a problem that can be quantified and analyzed, the realm of FAIR (Factor Analysis of Information Risk). As Tony Martin-Vegue writes in his blog post, FAIR includes a way to factor in tail risk for analysis: “risk conditions” either “unstable risk” or “fragile risk” (read the post for further explanation).
“Don’t fight the black swan battle,” Tony writes. “Provide the tools, such as those provided by the FAIR taxonomy, to help business leaders and your colleagues conceptualize actual risk.”
Nick Sanna agrees. “We, in the risk management profession, also have the responsibility to improve our game and provide the political, financial and business authorities with the data and the tools necessary to see 'gray rhinos' as they come charging towards us in clearer and more explicit terms so they can make better, risk-informed decisions.”
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