White swans and non-linear risks – a new challenge for risk prediction

July 2020

It’s time for a new risk paradigm

In April, renowned statistician Nassim Taleb chatted to New Yorker Magazine about the pandemic and his most famous invention, the ‘black swan.’ You are probably familiar with it, but suffice to say a black swan is a catastrophic and unforeseen event that is only very obvious after the fact. World War 1 was a black swan. But the COVID-19 pandemic is not.

Taleb goes as far as to call it a white swan, a very obvious risk that we’ve been warned about time and again. I’ve also seen this referred to as a black elephant, which is a problem in the room we’re all actively ignoring. But Taleb is closer to the truth: the pandemic is as white a swan as you can ever hope to find. The world just didn’t bother to listen.

Why does this happen? Why are organisational groupings in particular so bad at tackling the obvious? This blog from Gallup makes an interesting point:

“So why did we fail to see this coming? Partly because humans are notoriously bad at envisioning their future selves, and partly because we lack any incentive to. If we’re focused on quarterly returns, storing up talent or money for an as-yet imaginary event is counterproductive.”

Perhaps more interesting, this same narrow and short view also impacts how innovative and dynamic companies can be:

“It’s bad for business: a survey Gallup conducted before COVID-19 showed that only 22% of employees strongly agree they could take risks at work that could lead to important new products, services or solutions. And a 2014 Corporate Executive Board report showed that auditors spent only 6% of their time analysing strategic risks, but that the likelihood that strategic business risk failure would lead to significant losses in market value was 86%. Auditors spent most of their time on operational and financial risks.”

Stepping back to Taleb, he notes that the point of his black swan hypothesis was to push for change in our business practices and social norms for a connected world. On a visible level, such as how we use technology, that may have been happening. But business practices under the surface have stubbornly remained as is, and the pandemic has exposed these shortcomings. Specifically, those old habits are what led us to completely ignore a white swan such as COVID-19. We weren’t unaware. We were complacent.

But we’re also learning the lesson, which is why I’m seeing more talk about “sense and respond” risk management. The renowned consultancy Arthur D Little defines this as follows:

“Executives now require a ‘sixth sense’ of risk, to provide intuition into the emerging risk landscape and enable their organisations to sense and respond to emerging risk before devastating events are realised. This can be achieved through a proactive approach to risk management.”

We have been promoting this concept for years at thryve. It’s in our DNA: we use platforms such as Riskonnect, Salesforce and Flowgear to help companies integrate their data, make the right technology available to their people, and analyse their information to start predicting future trends. Such capabilities have become much more useful and affordable in the last decade.

Black swans are one thing. But now that leaders recognise even the white swans can catch them unaware, they want their organisations to become more alert and agile. They may not know what’s coming next, but they want to be more prepared.

This is where ‘sense and respond’ is replacing ‘measure and manage’ risk practices. It’s the new way forward for a connected world and dodging the punches of an uncertain future.


Sean Pyott

MD, thryve