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It's fundamentally unable to protect itself against black swan events, because they're (by definition) outside of its optimization horizon. I agree with your c

It's fundamentally unable to protect itself against black swan events, because they're (by definition) outside of its optimization horizon. I agree with your conclusion, but I want to push back on the assertion that COVID19 was a "black swan". Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them. There were examples of similar events in the recent past (for example, SARS, MERS, H5N1 influenza, etc). The reason markets are bad at dealing with pandemic preparation is the same reason that markets are bad at dealing with pollution. It's a collective action problem. The benefit of pandemic preparation is spread across society in a diffuse manner, whereas the costs are borne by the individual manufacturers and distributors who take on the increased transaction costs of dealing with three or four suppliers, when their competitors get away with only having one or two. It's analogous to dumping untreated sewage in a river. Even if the executives at a want to install scrubbers, as long as it has a competitor who can manufacture goods or provide services more cheaply by dumping untreated sewage, the company cannot do so, because the costs incurred will put it at a competitive disadvantage, and it will lose business to its competitor. In the same way, even if executives understand that having a supply chain dependent on a few key suppliers is a potential liability, they can't diversify as long as those suppliers are the lowest cost option, and moving away would result in them providing the same goods and services at a higher cost than their competition.

danans 7y ago
> Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them. Black swans aren't necessarily unpredicted. In fact they are usually predicted by a few people, but the predictions run so counter to the interests of established set of systems and models, that they are ignored. In the book, Taleb actually spins a story about an individual who spends his entire life predicting and preparing for an invasion by barbarians, but is ignored, and upon his deathbed, the invasion happens. People are constantly making predictions, many of which are very implausible, but it's never clear when one of those will turn into a black swan. The pandemics you listed were different from this one in that they were not nearly as transmissible, even though some were deadlier on an individual level. A lot of people got used to thinking: "that kind of stuff only happens in those kind of countries, not here".
- quanticle 7y ago
  I guess we have different standards as to what counts as a "black swan". To me, a black swan is an event that is genuinely unpredictable, and which has catastrophic consequences. A large earthquake in California, for example, is not a black swan. Even though we may not know exactly when the earthquake will hit, we know that one is coming eventually, and therefore reasonable preparations should be taken in order to mitigate the damage. An earthquake in Kansas, on the other hand, would be a black swan. Kansas is not in what we currently understand to be a seismically active region, and thus I don't think it's reasonable to expect Kansas to have the same level of earthquake preparation as California (and vice versa for tornadoes). In this instance, I think the pandemic was a reasonable thing to anticipate (even if no one could have predicted the actual timing or cause). There were airborne viruses which had made the jump to humans from a wild reservoir in the past. While previous examples were more deadly and less transmissible, the current outbreak was not, as I understand it, far outside the confidence intervals that epidemiologists predicted. An example of a black swan in this instance would have been an organism that was as contagious as SARS-NCOV-2, but as deadly as Ebola. That would have broken many of our models (which hold that transmissibility is inversely correlated with deadliness). It would have caused us to significantly reconsider our models of viral evolution and disease mechanisms. In contrast, the current outbreak hasn't really caused anyone to reconsider their models of epidemiology. It's played out largely as many epidemiologists warned. For that reason, I don't think the current outbreak is a black swan, and I think that many of the people calling it a black swan are doing so as an excuse to dodge responsibility for failing to prepare. It's as if I failed to secure my shelves in California, and then when an earthquake hit, and all my crockery spilled to the floor, I claimed that it was a "black swan", because no one could have predicted the specific timing of this earthquake.
  - danans 7y ago
    It's a fuzzy line as to what is predicted or not. One of most catastrophic earthquakes in recorded American history took place in 1811 in a place called New Madrid, Missouri, not far from Kansas. I'd predict that it's going to happen there again. If it does, I'd still call it a black swan, since the systemic incentives to not prepare for such an earthquake in that area are probably optimized for the short-term.

danans 7y ago

> Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them. Black swans aren't necessarily unpredicted. In fact they are usually predicted by a few people, but the predictions run so counter to the interests of established set of systems and models, that they are ignored. In the book, Taleb actually spins a story about an individual who spends his entire life predicting and preparing for an invasion by barbarians, but is ignored, and upon his deathbed, the invasion happens. People are constantly making predictions, many of which are very implausible, but it's never clear when one of those will turn into a black swan. The pandemics you listed were different from this one in that they were not nearly as transmissible, even though some were deadlier on an individual level. A lot of people got used to thinking: "that kind of stuff only happens in those kind of countries, not here".

quanticle 7y ago
I guess we have different standards as to what counts as a "black swan". To me, a black swan is an event that is genuinely unpredictable, and which has catastrophic consequences. A large earthquake in California, for example, is not a black swan. Even though we may not know exactly when the earthquake will hit, we know that one is coming eventually, and therefore reasonable preparations should be taken in order to mitigate the damage. An earthquake in Kansas, on the other hand, would be a black swan. Kansas is not in what we currently understand to be a seismically active region, and thus I don't think it's reasonable to expect Kansas to have the same level of earthquake preparation as California (and vice versa for tornadoes). In this instance, I think the pandemic was a reasonable thing to anticipate (even if no one could have predicted the actual timing or cause). There were airborne viruses which had made the jump to humans from a wild reservoir in the past. While previous examples were more deadly and less transmissible, the current outbreak was not, as I understand it, far outside the confidence intervals that epidemiologists predicted. An example of a black swan in this instance would have been an organism that was as contagious as SARS-NCOV-2, but as deadly as Ebola. That would have broken many of our models (which hold that transmissibility is inversely correlated with deadliness). It would have caused us to significantly reconsider our models of viral evolution and disease mechanisms. In contrast, the current outbreak hasn't really caused anyone to reconsider their models of epidemiology. It's played out largely as many epidemiologists warned. For that reason, I don't think the current outbreak is a black swan, and I think that many of the people calling it a black swan are doing so as an excuse to dodge responsibility for failing to prepare. It's as if I failed to secure my shelves in California, and then when an earthquake hit, and all my crockery spilled to the floor, I claimed that it was a "black swan", because no one could have predicted the specific timing of this earthquake.
- danans 7y ago
  It's a fuzzy line as to what is predicted or not. One of most catastrophic earthquakes in recorded American history took place in 1811 in a place called New Madrid, Missouri, not far from Kansas. I'd predict that it's going to happen there again. If it does, I'd still call it a black swan, since the systemic incentives to not prepare for such an earthquake in that area are probably optimized for the short-term.