Black Swan - Nassim Taleb: Event & application in marketing

What is meant by a black swan?

In The Black Swan Fallacy, Taleb (2007) teaches us that we see what we want to see. Information that contradicts this is ignored. Unknowingly, we all fall into this trap. Recognizing this is very important for companies when making decisions.

In his bestselling book The Black Swan - The impact of the Highly Improbable (2007), statistician and options trader Nicolas Taleb put a new spin on this. For him, a black swan is the statistically insignificant (i.e., a very small) chance of an extreme event. This small probability is exactly what we should not ignore. In this article you can read more about this and how to take advantage of it in your business.

What is a black swan event?

In his book Misled by Coincidence, Taleb (2018) writes three criteria for a black swan event:

1. It is an outlier. The past could not possibly suggest that the event was a possibility.
2. It has an extremely large impact. While this is often a negative event, there are also positive black swan events, think of the rise of the Internet, for example.
3. People make up explanations afterwards why the event was predictable and explainable.

Taleb argues that the world is much more random than we realize. It is the big, unpredictable events that shape the world. By their very nature, however, they are impossible to predict. The problem is not in not being able to predict these events, but our blindness to this randomness.

Why can't we predict black swan events?

In his book, Taleb (2007) gives three reasons why people are unable to predict black swan events:

1. We think the world is simpler than it actually is.
2. We emphasize facts/factual information
3. We use models that are "simpler" than reality and therefore, by definition, not one with reality.

What are examples of a black swan?

Virtually all life-changing events in history, political, scientific, business and private, are black swan events. Both negative and positive. Time after time we are totally surprised by them. The Twin Towers, the Internet, the Tesla, Covid, the examples are there for the taking. And time after time, we don't recognize the black swan until afterwards.

As human beings, we are built, or rather wired, to see details, and especially differences. Generalities we do not see, they do not stand out. We don't know what we don't know. U.S. Defense Secretary Robert Rumsfeld put it this way: there are "known unknowns," but there are also "unknown unknowns."

We sail blindly on predictions and statistical probabilities. The focus is on the most likely probabilities. Not on the "outliers," the tiny odds far to the left and right of the Gaussian normal distribution. Taleb teaches us to look at those very things. And to keep thinking critically and be ready to respond quickly.

How can you apply the concept of the black swan to marketing?

Although the black swan is often used for the investment world, there are applications for marketing as well. As an entrepreneur, there are multiple uses of the black swan to take advantage of:

Case study from our own work

At Tasmanic, we often see positive black swan effects. Customers who, for example, initially change their online vindbaarheid willen verbeteren, unexpectedly see other things change positively. The goal is more customers. But it also leads to new partnerships, better employees, investors, media appearances and free publicity. Without that findability, the chance of that was zero. Now that chance is not zero and you have the opportunity to gain huge returns in all sorts of areas.

Robustness

We are not going to be able to predict the black swan. So how can we prepare for it? By "robustness," says Taleb, by taking a robust set of measures that allow you to have a negative hit. But also: being ready to take advantage of a positive opportunity.

For example, consider spreading risk by getting leads and revenue not from 1 successful marketing channel but from several. Or by not building on Google search results alone. It seems safe and easy. Until you no longer have access to your Google Ads account. Read more about risicospreiding in marketingkanalen here .

Organize dissent

For every organization it is therefore a matter of being alert not to blindly rely on the past and waving away opportunities for negative events that are considered small. A step in this direction is: organize dissent and point out especially managers when they sweep dissent under the table with power. In fact, this is the application of 'falsification', the scientifically rigorous search for the opposite, developed by philosopher Karl Popper (1963).

Don't be the turkey

It depends on the viewer whether an event is a black swan or not. For a turkey happily fattened for months, the blow comes as a big surprise. For the butcher, it doesn't. To the turkey, the blow was unlikely to come. In other words, past results are no guarantee of future results.

Hence, Taleb advises, "avoid being the turkey." Identify weaknesses in operations so that they become "white swans" - that is, known issues. An example is bank stress tests, introduced after the 2008 crisis.

Arrogance and the Barbell Strategy

In his book, Taleb also warns against "epistemic arrogance," arrogance that occurs when people think they know more than they really do. The black swan therefore also has relevance to risk management.

Thus, he applied the Barbell Strategy in his work as a trader. McFarlane (2022) explains that the barbell strategy is an investment concept that suggests that the best way to balance reward and risk is to invest in the two extremes (high risk and low risk investments) while avoiding choices in between.

So he avoided medium risk investments and invested 85-90% in the safest investments and the rest just in highly speculative ones (the "outliers"). The possible loss is then capped at 10-15%. And there is also an opportunity for high profits. Especially at high inflation, this is an interesting strategy.

Resources

McFarlane, G. (2022). Barbell Strategy Explained for Stock and Bond Investors.https://www.investopedia.com/articles/investing/013114/barbell-investment-strategy.asp#axzz1pbC2xhqE

Popper, K. R. (1963). Science as falsification. Conjectures and refutations, 1(1963), 33-39.

Taleb, N. (2007). The Black Swan: The Impact of the Highly Improbable. Random House Inc.

Taleb, N. (2018). Misled by chance, Nieuwezijds B.V., Publisher