Mitigation of Black Swan events on individual level

November 28, 2010

The Black Swan idea came from the book “The Black Swan. The impact of the highly improbable.“, written by Nassim Nicholas Taleb.

Black Swan events are highly improbable events, like financial crisis, wars, happening time by time in our history.

The same book elaborates a little bit about mitigation strategy. These are quotes from the book:

“The idea that in order to make a decision you need to focus on consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty.”

And the general rules are:


a. Make a distinction between positive contingencies and negative ones.
b. Don’t look for the precise and the local. Simply, do not be narrow-minded.
c. Seize any opportunity, or anything that looks like opportunity.
d. Beware of precise plans by governments. The interest of these civil servants is to survive and self-perpetuate.
e. Do not waste your time trying to fight forecasters, stock analysts, economists, and social scientists, except to play pranks on them.

But then, I started thinking of me and my family. Should I rebalance my pension money in something more safe than stocks and bonds? Should I buy a bigger car to survive a car accident? Or call my insurance agent and ask for critical illness insurance? What else should I do?

Probably, you have ideas and, probably, I will agree with them. But what about other Black Swan events?