How to Prepare for Black Swan Risks?


 
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How to Prepare for Black Swan Risks?
Jos Nieland, Teacher, Netherlands, SIG Leader
According to Nassim Taleb, we can not prevent Black Swan risks (= rare events with a high impact) from happening now and then. But we CAN prepare for them. How?
Taleb is giving the following ways to prepare for Black Swans (in fourth quadrant situations):
1. Avoid optimization - Forget economics and learn to love redundancy. Keep some buffers and slack.
2. Donít use statistics to try to predict complex, fourth quadrant payoffs. Statistics donít work here. Try not to be exposed to events in the fourth quadrant.
3. No bonus without malus - Beware of the moral hazard (agency) problem. People, banks and organizations should enjoy both the positive and negative consequences of their acts and decisions.
4. Be very careful with risk information - Donít trust scenario analysis and stress testing. There is always more randomness then we think. We just donít know. Be extremely careful with using and interpret...Register
 

 
Preparing for Black Swans: 5. Systems Thinking
Augusto Carreira, Partner, Portugal, Member
I agree. One way to handle the weaknesses of our human way of being and our psychological tendency to be irrational, is to
 

 
Preparing for Black Swans: 6. Scenarios
Jim Burke, Manager, United States, Member
I enjoyed the book. Recognize that the list reflects tool misuse, e.g. scenarios are criticized, but scen...
 

 
Preparing for Black Swans by Scenario Modelling
John Spenceley
One of the advantages of scenario modelling as practiced by Shell is that it teaches flexibility in respo...
 

 
7. Metaphors and 8. Stories
Jim Burke, Manager, United States, Member
Indeed, Taleb writes on page XXVII: "My best tool is a narrative."
A good scenario is just that, a narrative that helps prepare, offers explanat...
 

 
Black Swan Preparation: 9. Keep an Eye on Wild Cards
Prakash Deshpande, Professor, India, Member
Normally, our thinking is a conditioned response. Also in a management scenario, we are conditioned to respond to safest alternatives and the w...
 

 
Preparing for Black Swan: 10. Common Sense
Dilip Khanal, CEO, Nepal, Member
We all know the proverb: save for rainy days. In modern days, we need to plan for uncertainty.
It's true that we know very little but we have ill...
 

 
Preparation for Black Swan Risks: 11. Training
Sripathy K.R, Management Consultant, India, Member
Most of the comments are very sensible, use common sense, keep an eye on wild card, invest in preparedness rather than prediction, do not use past tre...
 

 
12. Flexible Organization and 13. Lateral Thinking
Claudio Boffito, Professor, Italy, Member
A Black Swan is unpredictable by definition and may have disruptive effects. It cannot be tackled using conventional approaches but, therefore, may st...
 

 
14. High Reliability Organization Thinking
Mike Olson, Consultant, United States, Member
Managing Black Swan risk could take a lesson from the principles of a high reliability organization, that has a focus on fostering mindfulne...
 

 
15. Regulation and 16. Protection May Help
Jagdish B Acharya, Consultant, India, Premium Member
In the control of power grids, often various power plants are regulated with certain regulating rules. This leads to high reliability and up t...
 

 
17. Diversification
KATHRYN STEINER, MBA, Entrepreneur, United States, Member
Diversification is also key to prepare for risky, unpredictable events... I believe that in finance and investments
 

 
Preparing for Black Swan Risks: 18. Build Conflict Management Systems
Dr. Wilfried Kerntke, Director, Germany, Member
I'm agreeing in particularly with Mike Olson's and Augusto Carreira's ideas (suggesting systems thinking and mindful management).
I see an additi...
 

 
Preparation Against the Impact of Black Swan Risk
Bulus Ibrahim, Nigeria, Member
A black swan just can't be managed. It needs carefully and strategically designed thinking system as Dr. Wilfried Kerntk...
 

 
 


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