*Daily Black Swan 3

Where is the Gray Swan?

For most people that are intrigued by the idea of Black Swans it is not because they like them. Black Swans are unfair and cause a lot of damage.

Some Black Swans arise when we ignore sources of randomness. A Gray swan concerns modelable extreme events, a Black Swan is about unknown unknowns.

There is a glimmer of hope with Gray Swans because it is a way to start thinking about the problems of uncertainty. You are indeed much safer if you know where the wild animals are.

This is a very complex idea and there is so much more that goes into it that I cannot wrap my head around.

The best example of a Gray Swan would be: let’s say you know that a certain biotech company is capable of delivering a megablockbuster drug, bigger than we’ve had so far. This would not be a Black Swan, and you would not be surprised, should that drug appear.

Another example could be leaving your garage door open overnight night (or slightly cracked due to the hot summer weather). And then someone steals something from your garage overnight, or worse breaks into your house completely.

That would be a Gray Swan because you went to bed knowing the risk of leaving your garage cracked.

Versus someone breaking in when your garage door was completely shut (Black Swan).

Lastly, imagine you live in the rural country, and you notice a car pass by your house a couple times. It kind of seems as if this car is making rounds around your house. It would be hard to notice this if you were inside your house and preoccupied with cooking, watching television, etc. But if you did somehow notice that car pass your house 2-3 times within the span of 10 minutes you might be a little suspicious.

Let’ say you go to get pizza that night and when you come back your house had been broken into with windows shattered and rooms looted.

If you had noticed the car this would have made the event a Gray Swan because in hindsight you could say “I knew something was suspicious I felt it in my gut”.

Versus if you were too preoccupied before you went to get pizza and when you came back to your house broken into that would be a Black Swan.

Ponder these ideas for a moment. Consider if there has been any time in your life that you have experienced a Gray Swan. There are probably many moments in your life that have been Black Swans but there is no way to know if those could have been Gray Swans because if you remember a Black Swan is about unknown unknowns.

Regarding one of my previous examples: if you didn’t notice that car passing by your house several times before getting pizza that that would stay as an unknown unknown for the rest of your life. Leaving that scenario of someone breaking into your house as a Black Swan and never having the opportunity to be a Gray Swan after it has already occurred.

(Ideas from Nassim Nicholas Taleb and BlakeHus)

-BH