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