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What is a black swan event?

  • Category
    Economy
  • Published
    6th Jul, 2022

Context

A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows of about $100 billion from India in case of a major global risk scenario called as “black swan” event.

Background

  • The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001.
  • The term originated in lieu of sighting a rare black swan in Australia. Earlier to which Europeans believe that only white swans exists in the world.
  • Thus this event is named so, as a remark of an unprecedented event.
  • The First time it had noticed in 2008 as global financial crisis– a black swan event triggered by a sudden crash in the booming housing market in the US.
  • The fall of the Soviet Union,the terrorist attack in the US on September 11, 2001, also is considered as a Black swan event.

About Black swan event

  • A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
  • These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations.
  • They have a severe impact after they hit and they seem probable in hindsight when plausible explanations appear.

Criteria to call an event as a ‘Black swan’

  • Unpredictability of the event
  • Loss at global level or a regional level at a whole
  • Its effects can be seen

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