A Brief History

Black swans exist in real life. Long ago, it was believed that they didn’t. The term “black swan” was used to describe something that was fundamentally impossible because swans were thought to be only white.

What Happened Next?

When it was discovered that black swans actually do exist, the meaning of the phrase changed. A “black swan” came to signify an event that no one expected could happen, but which ultimately did.

The Correct Concept of the Term

The term “Black Swan” is most commonly used today in economics and risk management. It refers to events with an incredibly low probability of occurring but which, if they do happen, radically change everything—usually for the worse (naturally, right?). A black swan is an entirely unforeseen event that no one accounted for in the past. Of course, after a black swan event occurs, there will always be plenty of “prophets” claiming they foresaw it. But the fact remains—we live in the present, not the past.

The Black Swan in Our Lives

This term and phenomenon are particularly significant in the financial world, where the goal is to make more money while avoiding losses (the latter being much more challenging and critical). However, in our personal lives, there is at least one important area where this concept is relevant: insurance. Should you opt for full insurance coverage or not? Should you buy a ticket with the option to reschedule or not?

We often encounter such questions in our daily lives. Sometimes, we hesitate to overpay for insurance against events that may never occur. After all, don’t insurance companies profit from events that don’t happen?

Conscious Risk

The main theme of this discussion is conscious risk. If you choose not to overpay for something and are willing to take on the risk, that’s fine—provided you understand what the consequences might be and are prepared to bear them. For instance, home insurance involves a monthly payment that you could save by not opting for it. But what if your mortgaged home burns down? (Of course, mortgage insurance is mandatory in many countries.) In such cases, saving a small amount each month could lead to bankruptcy in an instant.

Consider health insurance in the U.S. (the land of opportunity, where everyone fends for themselves). You might live your whole life without needing any major treatment, but then face financial ruin if a serious illness arises.

An of course - the book itself: The Black Swan