The recent collapse of FTX was arguably a black swan event. It was rare, improbable, highly impactful on EA, and explained in retrospect without being predicted beforehand. People have written about Sam Bankmans Fried's personality, way of operating companies, and other details to explain how the collapse happened.

If all these factors were present, then why wasn't the collapse predicted in advance? My hypothesis is that a big dose of randomness from the crypto crash was one of the primary causes of the problem and that post hoc explanations are overrated.

Although there are specific lessons from the event related to personality, money, morality and so on, a more general lesson and perhaps the most important lesson is the importance of black swans.

Black swans involve unknown unknowns. We don't know what will happen and we don't know what we don't know. Black swans are improbable, unpredictable, extreme, and highly impactful.

EA faces other potential black swans in the future such as bioengineered pandemics, the creation of AGI, virtual reality, extreme climate change, unexpected wars, and sudden political changes.

Fortunately EA posts and books such as The Precipice and What We Owe the Future consider a wide variety of future possibilities. Nevertheless, I think it's difficult to overemphasize the importance of black swans.

My recommendation is for EAs to see the FTX collapse as a black swan event and a warning shot to learn from. Going forward, when thinking about the future, it's important to consider many possible futures including extreme possibilities and low-probability, high-impact events.

An analogy is a game of chess: we should be creative and think hard about the future because the better we can foresee future possibilities, the more likely we are to be prepared for risks, take advantage of opportunities, and ensure that the future is desirable.




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Thanks for sharing this. While I'm less on board with the idea that EA folks should have been able to detect the fraud in advance than some people here, "charity badly burned by fraudster" happens often enough to be an ascertainable risk, and "crypto wealth explodes, sometimes with at least an odor of foul play" is a regular occurence. So I don't think this was as unforeseeable as the black swan label would suggest.

I disagree because I think these kinds of post hoc explanations are invalidated by the hindsight fallacy. I think the FTX crash was a typical black swan because it seems much more foreseeable in retrospect than it was before the event.

To use another example, the 2008 financial crisis made sense in retrospect, but the Big Short movie shows that, before the event, even the characters shorting the mortgage bonds had strong doubts about whether they were right and most other people were completely oblivious.

Although the FTX crisis makes sense in retrospect, I have to admit that I had absolutely no idea that it was about to happen before the event.

By definition, a black swan event is highly improbable based on foresight. I don't think this qualifies -- it was generally known that crypto ventures have a meaningful risk of collapsing and that a significant number of those collapses are tinted with fraud or misconduct.

Many people, including myself, were wary enough of the crypto sector to stay out entirely for this and other reasons. I do not think I am a superforecaster or anything.

As an example, the possibility of my wife and I both dying before our son grows up is quite low but is not unforeseeable. I certainly don't expect the train we are on right now to crash . . . but our possible death is not an "unknown unknown." Nor was FTX's.

The specific risk of FTX exploding could have been specifically prepared for, and I think framing it as a black swan event obscures that.

A black swan event? Like voyager? Celcius? Terra-luna? (all in the last year, the list of crypto collapses is endless)

You can't call something a black swan event if similar events happen every couple months. The crypto sector was in a huge speculative bubble, literally everyone knew it, SBF practically admitted it months ago. The only actual surprise was how explicitly fraudulent the collapse was. 


I assumed the OP was referring to the alleged fraud. "It looks like one of the many 'key EA figures who some people thought was a total a**hole' ended up committing one of the worst financial crimes in history" still sounds like a black swan event to me. And it's had much worse effects than a regular crypto collapse.

I think people are misusing the phrase "black swan" to mean "unlikely", rather than "beyond the reach of normal expectations".  Predicting beforehand, I would have guessed FTX would go down via incompetence or exposure to other collapsing assets rather than direct fraud, but it certainly would have been on the list.  I mean, cmon, these are pretty much unregulated offshore casinos. 

Good point. It's important to note that black swans are subjective and depend on the person. For example, a Christmas turkey's slaughter is a black swan for it but not for its butcher.

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