We recently experienced an event involving an extended period of heavy rain over a short period of time which caused widespread flooding across much of New Zealand's lower North Island. Personally we were unaffected although many here in the Rangitikei were not so lucky, with water through their homes. While in Wanganui much infrastructure and property was damaged as the river overflowed banks. As the debate continues about whether this is a '100 year event' or 'a new norm' as part of global warming, I am reminded of our human need to be able to explain such events. We often assume that such events can be explained in a linear way - statistically speaking a 'normal' distribution. We all rely on being able to assess the risk of certain events occurring assuming such events are normally distributed. Are we sure that the world works this way?
Nassim Taleb thinks not. In his book The Black Swan he writes that before Australia was discovered people in the old world believed that all swans were white. This was not unreasonable since every swan that had been seen was observed to be white. This all changed on the first sighting of a single black swan in Australia.
It took just a single observation to invalidate the statement that had been derived from a millennia of confirmatory sightings involving millions of white swans. Taleb argues that almost all major scientific discoveries, historical events, and artistic accomplishments are black swans. They are undirected and unpredicted. He includes examples such as the rise of the Internet, the personal computer, World War I, and the dissolution of the Soviet Union. Taleb is highly critical of the widespread use of the normal distribution model as the basis for calculating risk.
I am unsure about whether the weather event that affected New Zealand's lower North Island was a black swan. However rather than trying to fit this event into a normal distribution our time and efforts would be better spent learning from this event for what it was - an outlier.
When dealing with black swans we should think carefully before we apply our standard risk assessment process.
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