What is the 'black swan' theory and its implications for risk assessment?

The 'black swan' theory, popularized by Nassim Nicholas Taleb, describes rare and unpredictable events that have significant consequences. These events are often rationalized in hindsight, leading to a false sense of security regarding their likelihood. The implications for risk assessment are profound, as traditional models based on normal distributions may fail to account for these outliers, leading to underpreparedness for catastrophic events.