Black swans: are we equipped to assess and manage them?
Terje Aven
University of Stavanger, Norway
Black Swan
A surprising, extreme event relative
to present knowledge/beliefs
Aven (2013) On the
meaning of a black swan in
a risk context. Safety
Science, 57, 44-51
A surprise for some
Not a surprise
for others
Unknown
knowns
Was this a Black
Swan?
Black Swan
I. Outlier as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.
II. Extreme impact.III. In spite of its outlier status, human nature makes us concoct
explanations for its occurrence after the fact, making it explainable and predictable.
Was this a Black
Swan?
Known events
Judged acceptableSo small
probability
Black swans
Extreme consequences
a) Unknownunknowns
b) Unknownknowns
c) Known but not
believed to occur
because of low
judged probability
Was this a Black
Swan?
The Deepwater Horizon accident
Erroneous assessments of pressure test results
Failure to identify formation fluid penetrating the well despite log data showing that this was happening
The diverter system was unable to divert gas
The cutting valve (blind shear ram – BSR) in the BOP failed to seal the well
http://www.ptil.no/nyheter/deepwater-horizon-ulykken-vurderinger-
og-anbefalinger-for-norsk-petroleumsvirksomhet-article7889-
24.html
Disasters
• We experience combinations of conditions and eventswhich collectively result in a major accident
• We do not normally identify such combinations ofconditions and events in risk assessments – and, if we did, they would typically be disregarded because of negligible probability
11
A B C D
Black swans
Extreme consequences
a) Unknownunknowns
b) Unknownknowns
c) Known but not
believed to occur
because of low
judged probability
How to confront the black swans
Knowledge
Risk assessments
Improved risk assessments
Risk is more than expected values and probabilities
Check list
• Is there an overview of the assumptions made ?
• Has a risk assessment of the deviations from assumptions been conducted (an assumption deviation risk assessment)?
• Have attempts been made to reduce the risk contributions from the assumptions that have the highest deviation risk?
Check list
• Is the strength of knowledge, on which the assigned probabilities are based, assessed?
• Is this strength included in the risk description?
• Have attempts been made to strengthen the knowledge where it is not considered strong?
Check list
Have special efforts been made to uncover the black swans of the type unknown knowns?
A surprise for some
Not for others
• Have special efforts been made to assess the validity of the judgements made where events are considered not to occur due to negligible probability?
• Has a managerial review and judgment beenperformed which place the analytical resultsin a broader context reflecting limitations oftools used and uncertainties?
Analysis Management
reviewDecision
Approaches
• Adequate concepts and frameworks
• Improved risk assessments
• «Reading the landscape» (signals and warnings)
• Robustness, resilience, cautionary measures, …
Probability-basedHistorical data
Knowledge dimension+
+Surprises
Risk perspective
Risk management implication
Risk analysisRobustness, resilience,
cautious policies …
Weight given to E
Take risk
Reduce the risks
and uncertainties
Cautionary-precautionary E[NPV], cost-benefit analyses ALARP
Balance
Development and protection
Risk acceptance criteria
E: Expected value