IWMC 2020 : Gray Rhino Lessons for The Wealth Practitioner

Speaker: Michele Wucker (MW) Founder and CEO at Gray Rhino and Company

Moderator: Punita Kumar Sinha, CFA, Serves on the boards of reputed companies in India.

Contributed by: Vikrant Warudkar, CFA, Volunteer – CFA Society India


MW coined the term “Gray Rhino” (GR) to draw attention to the obvious high impact risks. These risks are neglected because of their size and likelihood. She unveiled the concept in 2013 in the World Economic Forum at Davos. The timely metaphor has moved markets, shaped financial policies, and made headlines around the world. The concept is an apt metaphor for the ignored warnings that led to the COVID-19 pandemic. She has articulated the theory behind the concept in her book “Gray Rhino”.

MW defines the “Gray Rhino” (GR)  as a big scary thing, coming at you. In fact, one can imagine a big rhino with a horn, thumping and fully charged at you. The colour gray because, though there are species of rhinos named black rhinos and white rhinos, neither of them are so but they all are gray. We tend to ignore the obvious things. A rhino at the horizon may not appear dangerous and scary unless it comes next to you.  We tend to ignore certain scenarios because at horizon they appear too small and less probable, hence less risky. But when they are next to you, their enormous size and possible impact may create panic. These are GR’s. It is a cousin of the term “an elephant in the room”. An Elephant is right in front of everyone but we ignore it, no one does anything and we miss it. We need more dynamic things to grab our attention. GR fulfills this aspect. It is opposite to “ Black Swan” (BS). A black swan is an event which is very difficult to predict and can be seen only in the rear view mirror and not through the dashboard. Whereas, GR is known, it is coming at you, but will be scary only when it is next to you. GR accounts for emotional behavior while taking decisions in scary situations, instead of acting on facts.

In the book MW has characterized BS as “Unknown Unknown”, whereas GR as “Unknown Known”. MW explains that if one can identify a risk in advance it is not BS, it may be GR, like nuclear missiles fired by North Korea. While deciding whether it is a GR or BS, one needs to arrive at a probability. If it is obvious it is GR. Another feature of GR is, it is “ Value Neutral”. It might be good for one person, it might not be for another. Rise of China, and appreciation of Renminbi against the dollar are GR’s. Some risks flare up and fade away like storms and hurricanes, and some time we are most likely found off guards. The risk of nuclear war between India and Pakistan is the same kind of risk that we tend to ignore. It is important not to be too complacent about the things which are dangerous and are present since long.  In the past there were breakouts of viruses like Ebola and H1N1. We got accustomed to these viruses so that we underestimated the threat of COVID-19, at least, turning it into a pandemic. The response given by the governments was slower, as warning from China went unheeded. The Pandemic has struck the core of the concept GR. The leaders could have identified the coming health crisis. Nuclear risk is another example of GR, the risk of which is currently seen at the horizon.

Question arises why do people fail to identify the GR when they are so obvious:

Psychological biases, structural decision making issues, resource constraints, pervasive incentive are the reasons behind the failure of the leaders. Further, different resources and strategies are required while dealing with GR, depending on its stage of evolution. Outcomes are also shaped by decision making process and how accountability is decided. Planning under constraints gives birth to another GR. There are twisted incentives for people to do things right or wrong, which results into mega GR.


A GR typically goes through the following 5 stage framework:

  1. Denial: The decision maker assigns zero probability to the event. The “Denial” can be a “manufactured denial”, like the initial response given to climate change and the Tobacco. Denial, as a natural human defensive emotion, gets exploited.
  2. Modeling: Thousands of reasons are given to prove that the problem cannot be solved. 
  3. Diagnosis: The mindset shifts from can’t fix to what it takes to fix it. Understanding the problem, how big it is? How fast is it running? Is it related to other GR’s, i.e. Crash (a group of rhinos). The term Crash is also apt for financial markets. While addressing one GR, it may lead to another or it may be related to another. Upstream and downstream issues need to be solved to address the original GR. For example, outcomes related to COVID-19 are the worst in the highly polluted areas, i.e. one GR has impact on another. The outcome of this stage is answers to, who is the decision maker? Who has the resources? and how to get them on board?
  4. Panic or Urgency: Someone please do something. People usually get paralyzed or often do wrong things. Like in the financial world, bubbles get created in the fear of losing out. Governments further inflate these bubbles by helicopter money instead of repaying the debt or creating an  infrastructure. When the closing bell for such bubbles rings, the severity of recession or depression increases. 
  5. Action: Mavericks, positive change agents or the people who have dedicated their whole life for an issue take center stage. E.g. Bill Gates foundation has laser focus on health issues. The challenges are how to put more resources behind them or how to amplify the work. This stage is dynamic and requires more feedback. The actions should have no side effects. In some cases getting trampled is the right choice, like when the absolute technology or  hierarchy system needs to be replaced. Like in the case of Kodak, power of the new technology  was completely ignored to avoid cannibalization of the existing business.


Key excerpts from Q & A:

We have given fiscal stimulus and done monitory easing during the pandemic. This has  resulted in the asset bubbles and inflation. Whether we have created another GR in the form of a new financial crisis?

A: Yes. While responding to the current situation, we have created another GR’s. Though the central banks are claiming absence of inflation, there are asset bubbles. Money is not flowing to the businesses or industries. This has resulted in fewer job creation. The investment in stocks is less laborious and has a better tax regime. The incentives ideally should reach to the people who are at the bottom of the pyramid. These are the end consumers fueling economy. In reality the stimulus resulted in the creation of zombie companies. In the efforts to get to the other side of the pandemic, we should think of the economic solutions which are having sustainable impact.

What are the GR’s the wealth management professionals in India should be looking at?

A: GR concept works best when individuals think of it for themselves. Three big interrelated GR revealed by the pandemic are financial fragility i.e. unsustainable debt of the governments, inequality issues, and climate change. There is a close relation between climate change and financial fragility. Climate risk has been identified as financial/investment risk. Investment in green energy is preferred to fossil fuel. If we address one of these GR’s, by the virtuous cycle others will get addressed. Wealth managers should do more responsible asset allocation to generate alpha.

AI and block chain are GR, can these technologies be opportunities to the wealth managers?

A: The new technologies like robo advisors are going to reduce the cost. The one who will lower the entry barriers, with lower cost, will succeed. The premium end will be dealt by human advisors. They will use behavioral aspects for “Risk Fingerprints” i.e. willingness and ability of the clients towards risk.

India has a culture of group thinking and elders are respected. There are few rewards for questioning and standing out. What type of leadership/culture is required to deal with a GR? How decisions are made while confronting a GR?

A: A homogeneous group of people (by profession or demographic), tends to think in the same direction.  In India it is most likely that the things said by the first person are repeated. In the process serious warnings get ignored. This needs a huge mindset shift. A way to address this is to use “Inclusion Meeting Cards”, where everyone is assigned a specific role. The roles include Devil’s Advocate as well as Angel’s advocate. Then these roles are shifted among the people in the group. Angel’s advocate card is given to someone who always says “No”. That person has to support the idea. In this way habits are built in the decision making process that will help in better decision making. Another important aspect is the risk attitude of the people in the group. Risk compass (scale) is used to identify the risk attitude.  Persons having a similar risk score should not sit next to each other, as they tend to think in the same manner. They are going to have the same blind spots. Understanding your own biases and how they are shaping the decisions is important. So people from diverse backgrounds and points of opinion should be on the board. The outcome could have been different had there been Lehman Siblings on the board, instead of brothers or sisters.

Do you see the Crypto Currencies as GR for financial intermediaries like banks and others?

A: The Crypto Currencies are GR, and there are GR’s within the Crypto Currencies as well. However, the Crypto Currency is an investable asset class as well. Hence, it is important to identify a GR for one self. Because, GR, being value neutral, may be beneficial for one class.

Whether inequality and civil unrest in the US are GR’s?

A: Yes. The civil unrest in the US on account of inequality is a GR.

How to deal with an identified GR? One may act too early or little late. How to do a cost benefit analysis?

A: It is an important aspect of the decision making. Some people act too early in fear, or act in the wrong way. Some do not act at all as they feel powerless. Questions like what are my GR’s? and what should I do to address them? makes them powerful.

What is the greatest GR the world is facing right now?

A: The greatest GR is a failure to recognize a GR. The biggest challenge is the mindset shift, and the biggest risk is passivity. We need to act in a positive way, and we need to be more accountable.

Is there any GR India should be worried about?

A: Water scarcity, Corruption, Infrastructure, Digital Disruption, Digital Toxicity, Succession challenge, and response to an industry change are some of the GR’s related to India. However, the “Gray Rhino” concept is more powerful for people who own it for themselves.

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