What is a Black Swan event How is this related to a power la

What is a Black Swan event?

How is this related to a power law or pareto distribution?

What is the 80-20 rule? How does the tail of a power law compare to the tail of a normal distribution?

What does this say about the likelihood of \"dramatic\" events happening?

Using one of the following plots (or one of your own that you find), discuss the implications of planning and decision making, if one assumes a power-law distribution instead of a normal (i.e. Gaussian) distribution.

Solution

What is a Black Swan event

In the days following the massive earthquake in Japan, various news organizations and blogs have been using the term \"black swan event\" quite regularly.

The earthquake in Japan, they say, was a black swan event.

So what does \"black swan event\" mean?

The term \"black swan\", as it applies to finance/economics, was popularized by Nassim Nicholas Taleb in his book \"The Black Swan\".
When you think of a swan (as in the bird), what comes to your mind? If you are like most people, then you probably envision a graceful, white bird that floats on the water.

Most swans are white, but some, in fact, are black. The existence of black swans is a fact that takes most people by surprise.

Now let