Oil, electricity and Taleb’s ‚Black Swan‘: The impact of the highly improbable on energy and how to mitigate it
Master's Thesis from the year 2012 in the subject Business economics - Business Management, Corporate Governance, grade: excellent, Corvinus University Budapest (School of Management), language: English, abstract: The paper is the result of the attempt to subject the socio-economic world of energy to an analysis regarding a phenomenon called the ‘Black Swan’. This concept has been made popular by Nassim Nicholas Taleb, who has become a popular point of reference ever since the beginning of the financial crisis in 2007. Based on his work, the paper first defines the concept of the ‘Black Swan’ as an extremely unlikely high impact event, which is evidently unpredictable ex ante; however, is regarded as potentially avoidable by most observers ex post facto. The underlying assumption is, that against commonly held believe, it is not a long chain of incremental and statistically relevantly many events that makes history, but a seemingly insignificant number of outliers, or hence, ‘Black Swans’. Consequently, in its second part the paper focuses on a critical examination of the strategic prediction models used in the energy business today, which are mainly based on driver based models. Relying on Gaussian Bell Curve type normal distributions in order to predict future supply and demand, these models try to predict future price and value chain developments, ultimately searching for a strategic direction. Using historic data and experiences in order to review to what extent the ‘Black Swan’ influenced the development of the energy world in the past, the paper questions this approach by showing that time and again similar predictions have been rendered obsolete by real developments. In order to apply the necessary methodological rigor, ‘Black Swans’ and their impact are measured according to predefined criteria and indicators, elaborated in the first part of the paper. These indicators are mainly qualitative, however, as an empirical anchor the paper uses the historical development of the oil price, focusing on peaks and lows. The most striking historical cases of sudden price rise or decline are examined in detail in order to find commonalities and differences. Finally, based on the findings of this historical analysis, the paper raises the question, whether it is possible to draw any practical conclusions for the future, looking for methods, which could provide protection from ‘Black Swan’ events.
What people are saying - Write a review
We haven't found any reviews in the usual places.
Analysis The Black Swan in the history of oil and electricity
Is protection possible? Discussion and outline of risk mitigation measures
Other editions - View all
actors actually analysis biggest Black Swan blackouts Brinded California Electricity Crisis California energy crisis caused certainly confirmation bias Consequently consumers countries crude oil crude oil price deregulation developing world discussed earthquake economic effect efficiency electricity price energy business Enron example exposure extreme impact event fact failure focus Fooled by Randomness fuels Fukushima further Furthermore future game changing happened high impact events historic http://www.eia.gov/pub/oil_gas/petroleum/analysis_publications/chronology/petroleumch ronology2000.htm#T_4_ increasing industry instance Iran Iranian revolution Iraq Iraqi Japanese Kuwait long term mitigate Nassim Nicholas Nassim Nicholas Taleb Nixon nuclear energy nuclear power oil and electricity oil business oil crisis oil market oil producing OPEC Policy political possible predictions price levels Quest redundancy regarding Black Swan region result rise risks role Saddam Saudi Arabia scenario shah shocks sources strategic sufficiently rare supply side surprise Tajikistan technologies Tsunami unexpected unpredictable volatility Western Yergin York