“This man, on one hand, believes that he knows something, while not knowing [anything]. On the other hand, I – equally ignorant – do not believe [that I know anything].”
- Socrates in Plato’s The Apologies
The notion of Socratic ignorance has been a ideological theme for centuries. As the notion goes, the wise man is not he who thinks he knows everything, rather he who knows that he does not know everything.
Since ancient times, this idea has formed a common thread in philosophy. Its application to the fields of economics and politics has, however, been a more recent phenomenon. As recently as 2004, in his book Fooled by Randomness, Nassim Nicholas Taleb applied the idea to financial markets. He proposed that the notion that financial institutions can both fully know and fully quantify the risks associated with their businesses is a false wisdom, an arrogant oversight that has a valuedestructive effect on their business models.
When, in 2007, Taleb published his now famous book, The Black Swan, the notion was expanded beyond financial markets into the seemingly unpredictable and devastating events, which impact not only economics but the security of the nation. These occurrences he called ‘Black Swans’.
Black Swans have now entered into the common parlance of big business, with risk managers busily deploying strategies to better predict and deal with the fall-out of Black Swans. The Boards of Directors of large enterprises are gradually realising not only that the risks to their business never be fully quantified but also that, in this knowledge, they gain a competitive advantage by being better prepared than their competitors to deal with crises.
Institutions outside of the financial sphere are only just beginning to take note of Taleb’s important theory. So as Business (and especially financial institutions) begins to acknowledge the necessity of understanding Black Swan events and incorporating them (as best they can) into their business models, the UK Government has started to lag in its thinking around Black Swan risk.
Given the obvious importance to the nation of preventing national disasters, or at least mitigating their impact, what lessons can the Government take from the world of Business to address these risks and to add value to the national security strategy?
This Bow Briefing describes the ways in which Business analyses and protects itself from Black Swan events. By looking in detail at recent examples of national and international crises and getting visibility on both their effect on the nation and how better risk strategies could have helped to mitigate their effects, we argue that the Government has much to learn. In doing so, we make several specific and achievable policy proposals, which we have set out on page 6. The Government should embrace modern qualitative and quantitative methods of risk management, as it is only with robust governance structures and cutting-edge risk management solutions created by modern enterprise that the Government can begin to effectively cope with that elusive beast, the Black Swan.
Download the full paper below...