Implications of black swans to the foundations and practice of risk assessment and management

In this article, we discuss how to deal with black swans in a risk context. A black swan is here understood as a surprising extreme event relative to one׳s knowledge/beliefs, and can be of different types: a) unknown unknowns, b) unknown knowns (we do not have the knowledge but others do) and c) events that are judged to have a negligible probability of occurrence and thus are not believed to occur. In the article, we review the current approaches for confronting black swans, the aim being to gain new insights by addressing the three types of black swans separately, motivated by the fact that they require different types of measures. The main conclusions of the article are that there is a need to i) extend the current risk conceptualisation and treatment frameworks to include the black swan risk, ii) develop a new generation of risk assessment and decision support methods that place more emphasis on the black swan risk and iii) better understand what analysis captures and what lies within the management domain.