The Black Swan: The Impact of the Highly Improbable has been floating about in our mental world for a couple of years now since Nassim Nicholas Taleb published the book. It refers to rare events which are so far outside of the normal course of events that they cause severe problems. He comes from the world of investment finance where he first developed his ideas about catastrophic events because by the standard models for predicting economic behavior there were sudden events which would go totally outside of expectations.
It would seem that in a very long run anything that can happen will happen. However, one should be prepared only for what is likely to happen in a reasonable period of time because preparing for every last thing that could potentially happen would cost far too much. It is possible for a meteor of the size that killed the dinosaurs to strike our Earth, but for us personally to make preparations for events this rare wouldn’t be cost effective. On a national level it has been deemed wise to at least do an astronomical search for dangerous objects, and if something is found to then take some appropriate action. Fortunately, the time lag for this type of problem should be long enough for humanity to take appropriate actions. But for us as individuals to spend a single penny on that problem would be a penny wasted, and that’s “a penny better saved for a better use.”
When we approach more tangible problems, but ones still generally removed from daily life, like a car accident, we can and should take some reasonable actions. First is to be very careful when around moving pieces of steel; also we should be sure to keep our insurance policies in order for that once or twice in a lifetime accident, so we can recover our normal living situation.
The point that becomes apparent when discussing rare but potentially dangerous events is that when they come they are sudden in their effects. That is what was apparent in the various stock market crashes Taleb was considering with his black swan analogy. On a personal view, the car accident is a reasonable comparison to the stock market crash, because only moments before the probable crash, and possibly even briefly before the inevitable collision everything is in perfect condition. It’s like a turkey the day before Thanksgiving is in perfect condition until the last second. Unfortunately, in these situations it is too late to take effective corrective action.
What needs to be done, to prevent tragedy in these situations, is to have protections in place such that even when the terrible event occurs you will be protected. Better yet, arrange things in such a way that when an unexpected but possible thing happens you actually benefit, and the worse the event the more beneficial it is to you. Convince the farmer you are good breeding stock and then preparations for the next holiday are quite entertaining.
Spend as little as possible to lock in benefits from rare events.