The industry isn’t as robust as we might think.
Nassim Nicholas Taleb has become something of a celebrity in the past couple of years. Taleb’s 2007 book, The Black Swan: The impact of the highly improbable, warned decision makers about the folly of relying on econometric analysis to manage risks, because unprecedented “black swan” events eventually show up and turn that analysis on its head. The subprime mortgage bust seemed to prove Taleb’s theory, catapulting him to rock-star status in the world of financial economics.
Taleb’s Black Swan Theory is illustrated in a parable—ironically about a different bird: the Thanksgiving turkey. From the turkey’s point of view, life is predictable and stable, with daily feedings, care and protection by the farmer. But then Thanksgiving rolls around, with a big surprise the turkey couldn’t have foreseen from its lifetime of experience.
Taleb isn’t saying people should try to be like smart turkeys and predict their own Thanksgiving doomsdays. Instead he’s suggesting that we should altogether avoid the turkey’s problem—that we shouldn’t rely on strategies that leave us vulnerable to unprecedented events.