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

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  • Aven, Terje

Abstract

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.

Suggested Citation

  • Aven, Terje, 2015. "Implications of black swans to the foundations and practice of risk assessment and management," Reliability Engineering and System Safety, Elsevier, vol. 134(C), pages 83-91.
    • Handle: RePEc:eee:reensy:v:134:y:2015:i:c:p:83-91
    DOI: 10.1016/j.ress.2014.10.004
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    References listed on IDEAS

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    1. Nilesh N. Joshi & James H. Lambert, 2011. "Diversification of infrastructure projects for emergent and unknown non-systematic risks," Journal of Risk Research, Taylor & Francis Journals, vol. 14(6), pages 717-733, June.
    2. Bo Bergman, 2009. "Conceptualistic Pragmatism: A framework for Bayesian analysis?," IISE Transactions, Taylor & Francis Journals, vol. 41(1), pages 86-93.
    3. Aven, Terje, 2014. "On the meaning of the special-cause variation concept used in the quality discourse – And its link to unforeseen and surprising events in risk management," Reliability Engineering and System Safety, Elsevier, vol. 126(C), pages 81-86.
    4. Aven, Terje, 2013. "Practical implications of the new risk perspectives," Reliability Engineering and System Safety, Elsevier, vol. 115(C), pages 136-145.
    5. Aven, Terje & Zio, Enrico, 2011. "Some considerations on the treatment of uncertainties in risk assessment for practical decision making," Reliability Engineering and System Safety, Elsevier, vol. 96(1), pages 64-74.
    6. Terje Aven & Ortwin Renn, 2010. "Risk Management and Governance," Risk, Governance and Society, Springer, number 978-3-642-13926-0, March.
    7. Aven, Terje & Krohn, Bodil S., 2014. "A new perspective on how to understand, assess and manage risk and the unforeseen," Reliability Engineering and System Safety, Elsevier, vol. 121(C), pages 1-10.
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    Keywords

    Black swans; Risk; Uncertainties;
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