The Perfect Storm Fallacy

There’s danger lurking just over the horizon. Are you ready?

In the book, The Perfect Storm, author Sebastian Junger describes how three relatively ordinary storm systems came together in the North Atlantic to produce a single storm of immense ferocity. The perfect storm fallacy is the belief that because each of the events contributing to such storms is unlikely, the coincidence of two or more events that could generate a perfect storm is also unlikely.
Perfect storms, however, are a great deal more frequent than people suppose – especially in business.

This is because the total number of possible events that could contribute to a perfect storm is often quite large, as is the total number of combinations of those events. The total number of those opportunities to arise is equally as present.

So, while the likelihood of one particular combination resulting in a particular perfect storm might be very small, the likelihood of an unspecified perfect storm might be very large.

This may sound fairly obvious, but even experts in risk and probability get it wrong all the time. Perfect storms happen frequently, such as the sub-prime melt down of 2008, the COVID-19 pandemic and the financial struggles facing businesses today.

How can you prepare yourself for what’s on the horizon?