AON – Pentland Analytics
Overview: Extreme events can be difficult to analyse. For a start, there’s not much data. Uncertainty is high as are the values. The data tend to be noisy, ambiguous and complex. And that’s before we consider our natural capacity for biased interpretation. We can agree perhaps that an evidence-based study of events that don’t happen very often is not without its challenges.
The global impact of the coronavirus (COVID-19) pandemic has reminded us all of the challenges we face in managing extreme events. In Taleb’s thought-provoking book, he focuses on “Black Swan” events which he defines by their rarity, extreme impact and retrospective (though not prospective) predictability. Black Swan events are extremely rare. They have yet to be imagined. They are the unknown unknowns with unpredictable causes.
In this paper, we focus on their lesser known cousins, the Grey Swans, occasionally referenced and seldom defined. These too are rare but we know that they exist, and they are not so rare that we cannot make sense of them. They offer us rich opportunities for learning. Offered herein are a few observations, based on Pentland Analytics’ unique and proprietary Reputation Crisis Databank of Grey Swan events. The database currently includes 300 corporate reputation crises from the last 40 years. Each of these reputation Grey Swans has been analysed, its impact on shareholder value modelled and the drivers of recovery identified.
