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In: Economics

What is a black swan event? Why do you think such an event is difficult to...

What is a black swan event? Why do you think such an event is difficult to predict? Is it possible to prevent or reduce the chances of such an event from occurring? If so, how do you think it would be done?

Solutions

Expert Solution

The Black Swan Theory applies to certain things that are hard to foresee during the usual course of business. They 're happenings that are random, unexpected, but high impact. These events are considered outliers, because in the foreseeable future, there are no past data that can point to their occurrence.

The Black Swan Theory refers to huge, unpredictable events which are difficult to predict. There is no mathematical model capable of predicting certain events. Such events take place not only in industry, politics and nature but also in stock markets.

The events are of high magnitude and can be classified as positive or negative events involving black swans. A positive black swan occurrence will be the one that has a good result. For instance, the Internet has helped us interact with almost all around the world. No one was talking about it but the benefits are huge and rising by the day.

A black swan is an extremely unusual occurrence with significant implications. It can not be predicted in advance, though many say after the fact that it should be predictable.
Black swan events can cause catastrophic harm to an economy, and can only be planned for by constructing resilient structures because they can not be anticipated.
Reliance on standard forecasting tools may both fail to predict and potentially increase vulnerability to black swans through risk propagation and false protection offerings.


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