Black swans and other animals

You’ve probably heard the phrase “black swan event” over the last few years about the banking crisis. If you haven’t or are just not sure what people mean with that here’s the short version. In nature most swans are white, but every once in a while a rare thing happens and you get a black colored swan. The rarity of the event, a swan that is black, is what people mean with the metaphor. The phrase “black swan” sounds more friendly than the real definition of the problem: unmitigated systemic risk. That sounds pretty scary. See, swans don’t turn around and eat you even if they are black, but in the real world unmitigated systemic risk is like a lion that feasts on you like a delicious t-bone steak until everything is gone.

There is a life lesson in this mess that is extremely important. Even very smart people can be blind to the real and large risks. The financial industry employs thousands of analysts in a department called “Risk Management” and they are intended to be the watchdogs that clearly assess and quantify the impact of business decisions and practices. The sad reality of 2008 is that an entire class of smart people convinced themselves that risk no longer existed in the mortgage industry with all their new financial instruments, regardless of who got a mortgage. Now, if you’re shaking your head at a mortgage policy that makes no sense, you’re right.

Generalize this and you see this basic problem play itself out daily; it is a basic human nature problem. I get fixated on an attractive possible outcome and in the process downplay, ignore, or outright deny the consequence of the choice. Even good things can go too far as seen with the effect of fathers and mothers that in their pursuit of providing good things for their families work long hours but in the process don’t have enough time to be a parent to their children. Peer pressure is a huge source of blindness to risks. We often think of teenagers as prone to this but we see mature adults can do the same thing. A study by Temple University quantified the effect of just the mere knowledge of friends watching them during a simulated driving course. Just being told that friends were watching their performance (not present or even actually true), teens (age 14-18) ran stop signs 40% more often and had crashes 60% more often. You can read more about this here:

This reminds me of a quote by Stephen Covey, a motivational speaker and business consultant, that is very intuitive but often overlooked or even forgotten:

“While we are free to choose our actions, we are not free to choose the consequences of our actions.”

and a companion concept that helps ground thinking that Covey is quoted as saying:

“There are three constants in life… change, choice and principles.”

Understanding the enduring principles of life and staying true to them is the greatest tool to a successful and truly happy life.


About Steve Ledford
Christian, husband, father, businessman, engineer, and all around regular guy. I have travelled some uncommon paths in life. Over the course of time I have found that truth is always simple, without exception. My life's purpose is to find it, live it, and speak it.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: