A grey swan is a known, plausible risk that is considered unlikely but could have very large impact if it materializes. The term is a counterpart to the “black swan,” which is reserved for extreme events that are truly unforeseen rather than merely underestimated.
A grey swan event is one that:
Is already on the collective radar (experts can describe the mechanism and scenario).
Has low perceived probability, so it is under-priced or under-prepared for.
Can cause outsized economic, financial, or societal disruption if it occurs.
In risk terms, it sits between routine, modelled risks and true black swans, combining partial predictability with extreme consequences.
Black swans are events that lie outside standard expectations, with no convincing prior evidence they could happen, and whose narratives are constructed only in hindsight. White swans are high‑probability, well‑understood events that models already capture.
Grey swans differ in that they are explicitly conceivable and often discussed, but behavioural and institutional biases mean they are discounted, ignored, or not operationally prepared for.
Commonly cited grey swans include:
Structural issues such as climate change, demographic shifts, and unsustainable debt trajectories, which are widely known yet often under‑hedged or under‑managed.
Geopolitical or policy shocks that were visible as scenarios but still surprised markets in timing or magnitude, such as Brexit or certain election outcomes.
These events demonstrate how “visible but neglected” risks can propagate into market dislocations, regime shifts, or systemic stress.
From a risk management perspective, grey swans highlight the need for:
Systematic scenario analysis and stress testing of low‑probability, high‑impact cases that are already identified qualitatively.
Governance and incentives that counteract short‑termism and confirmation bias, which otherwise lead organisations to underinvest in resilience against these scenarios.
For investors and institutions, the key is not forecasting exact timing, but building portfolios, capital structures, and contingency plans that are robust to a range of such non‑baseline but thinkable states of the world.
