Risks are getting weirder; here are the Grey Swans

Risks are getting weirder; here are the Grey Swans
Photo by Alexander Sinn / Unsplash

As someone dealing with risk and uncertainties as the fuel of my practice (no risk, no innovation, my friends), I'm always on the lookout to sharpen my understanding of all forms of volatility. Understanding how 'complex' differs from 'complicated' or 'chaotic' is not an affectation. It's a skill.

And as most few have certainly by now read about Black Swan events, our world is now dealing more and more with Grey Swan events.

Black Swan's events refer to unforeseen, highly improbable, and unpredictable events that have a major impact. These events catch us off guard because they are outside of our usual prediction envelope. They are far above or below our long-term min/max projections and go against our assessment models.

Grey Swans events are different.

Grey Swans are within our prediction models. They are not implausible at all, but if their potential occurrence is acknowledged in advance, it's deemed extremely unlikely and, as such, often overlooked.

  • What if snow entirely disappeared from the Alps in the next ten years? It is highly unlikely, but it fits with the most catastrophic climate change scenario to a certain extent. Grey Swan.
  • What if Chinese automakers were leading all car sales segments within five years? No one would take this hypothesis very seriously, but it's technically doable. Grey Swan.
  • What if a global pandemic would spread to a corner of the globe worldwide, halting the global economy for a few years? Oh, wait...

You get it.

The nature of Grey Swans makes them as vicious as Black Swans to a certain extent because, contrary to them, we have them on the map from the start. We choose not to factor them in. As such, they are critical traps for collective decision-making in business, as no one wants to be too pessimistic (or too optimistic, as they work both ways) about a three- or five-year strategic plan.

However, some of the best startups understand that the current min/max limits of any market or industry are reachable and can be leveraged. Startups mostly cannot feed on Black Swans but can feast on Grey Swans.

But for climate change, the picture is bleaker:

The way to think about climate change now is through two interlinked concepts. The first is nonlinearity, the idea that change will happen by factors of multiplication, rather than addition. The second is the idea of “gray swan” events, which are both predictable and unprecedented. Together, these two ideas explain how we will face a rush of extremes, all scientifically imaginable but utterly new to human experience. - Zoë Schlanger