The world will probably not come to an end in 2011 or even in our lifetime for that matter but there is something else that is likely to rock the rest of our lives: "black swan" or "fat tail" events.
They have always existed but, unfortunately, human memory suffers from a bout of short termism, we tend to forget longer term experiences, especially if they are unpleasant. I guess it is an inherited trait of our ancestors which explains why the human spirit tends to be on average optimistic. Because of our short term memory bias, however, we dont realize that "fat tail" events in fact occur more frequently than we think they do. Also I would add that a "black swan" event can also be a pleasant one such as when a major market rally occurs but we like to concentrate on the negative end because that is what needs to be controlled.
For this year, we see several risks that have negative "black swan" potential. The table above summarizes the more important ones.
They have always existed but, unfortunately, human memory suffers from a bout of short termism, we tend to forget longer term experiences, especially if they are unpleasant. I guess it is an inherited trait of our ancestors which explains why the human spirit tends to be on average optimistic. Because of our short term memory bias, however, we dont realize that "fat tail" events in fact occur more frequently than we think they do. Also I would add that a "black swan" event can also be a pleasant one such as when a major market rally occurs but we like to concentrate on the negative end because that is what needs to be controlled.
For this year, we see several risks that have negative "black swan" potential. The table above summarizes the more important ones.
