Alternative facts - the greatest, strongest facts that ever existed
The work of science is to substitute Facts for appearances and demonstrations for impressions. Rings a bell, right? It should if you are an Actuary. It’s a quote by John Ruskin that graces the Society of Actuaries` (SOA) Fellowship Certificate. So it`s a safe to assume that we actuaries are pretty serious about our getting our Facts right since it`s referenced on the coveted Fellowship (FSA) certificate.
There is a joke from Misbehaving — Richard Thaler`s book — that says that a Chicago Economist would never pick up a US$20 note on the street. If there really was a US$20 bill on the street, someone else would have already picked it up and so it really could not exist. Hence for the Chicago Economist, the non-existence of the US$20 note is an alternative fact.
Alternative Facts is the `new` catch phrase is being applied to spin lexicon and the media is hopping mad! New urban dictionary entries such as Post Truth & Alternative Facts harken ominously to Newspeak. In the world of George Orwell`s Nineteen Eighty-Four, Newspeak is a controlled language, of restricted grammar and limited vocabulary, a linguistic design meant to limit the freedom of thought — personal identity, self-expression, free will — that ideologically threatens the régime of Big Brother and the Party.
Breaking news alert! Throughout history we have always been living with Alternative facts. Alternative facts strongly supported the theory that the world was flat and this was corroborated by the greatest minds of their time even after mathematical models proved otherwise. Poor Giordano Bruno (1548–1600) was burned at the stake for his scientific views that included then radical cosmological theories.
Alternative facts encouraged the medical profession to perform bloodletting until the late 19th century; bloodletting was a contributing factor to the premature death of President George Washington presumably by the country`s best medical practitioner at the time. Alternative facts support the facebooks posts of creationists, preppers ,members of the ant-vaccine movement and the landing of aliens at Roswell, New Mexico.
For me what`s even more worrisome than Alternative Facts is Alternative Conclusions — how we can look at the very same facts that may include robust data and come to diametrically opposed conclusions. As a student of Behavioral Economics, Michael Lewis, Daniel Kahneman & AmosTversky, I throughly enjoyed `The Undoing Project` by Lewis which combines all of the aforementioned subjects. Tversky once provocatively retorted at an interview about his field of study “We study natural stupidity not artificial intelligence”. If you think that line was harsh, Amos`s partner in crime Daniel Kahneman (psychology officer for the Israeli Defence Force & 2002 nobel prize winner in economics) stated that he was driven to try to understand conundrums such as why when a regime bent on the destruction of the Jews rise to power in Europe, do some see it for what it is, and flee, and other stay.
You don`t have to go very far to see examples of people carrying on with mundane activities of daily living, looking at the same hard facts but embracing an Alternative Conclusions that are detrimental to their financial peace of mind, quality of life and even life expectancy; Smoking, poor dietary habits, poor sleeping habits, insufficient exercise, driving whilst drinking/texting, not having life insurance, insufficient saving for retirement …ad infinitum.
One big happy actuarial family
The most insightful definition of an actuary that I have come across is that he/she is the kind of mathematician who rounds off assumptions but not the results.
For a diverse, highly argumentative and intelligent profession, actuaries generally arrive at roughly the same results after being exposed to the same data. Fellow actuaries usually get pricing and reserving in the ball-park. Corporate Actuaries need to get reserves signed off by external auditors and regulators and in most cases the discussions are quite civil. Also when we quote for large Reinsurance contracts, there is usually price convergence amongst the major players. We are basically one big happy actuarial family especially when compared with lawyers and economists to mention two adversarial professions
There is however Alternative Conclusions amongst the consumers of the products that actuaries develop. The general public is still woefully uninformed with respect to life, health & retirement products. How can actuaries help unfreeze the under-insureds` mindset ? Should actuaries help? Definitely yes! Especially where the financial consequences can be adverse.
The generally uninsured public & unfunded future retirees often come to Alternative Conclusions when presented with the same data set regarding limited life expectancy, need to financially protect a young family, need to create a nest-egg for retirement, cost of caring for aging parents and the prohibitive cost of self-funding health care. Surely actuaries need to roll up their sleeves and help our marketing and product colleagues improve the general population`s understanding of insurance products regarding the availability & demystification of
The need to buy Life Insurance and then understanding how much Life insurance coverage you might need.
Voluntary benefits/supplementary benefits offered via Group Life — signing up could not be easier
Saving for retirement — you only get once chance to get this right.
How much should you invest
Choosing most appropriate investments
Implication of longevity/interest rates/market volatility even if you have established a retirement plans
Understanding varying Health Insurance plan offerings and the financial consequences of being uninsured.
Importance of contracting living benefits including Long Term Care
Simplifying the life & health product offering is likely to increase sales rather than reduce sales. Simplification can help people take the plunge to embrace a new habit/product. Look at Apple which had the confidence in its simple and intuitive functions to completely dispense with the hard copy of the user manuals. Poor Blackberry shareholders.
The actuarial profession must not shirk its duty to serve the public interest. Our best efforts could include a creative revisit of worksite marketing, predictive modelling and behavioral economics to compliment traditional sales channels. We should not underestimate non-actuaries` addiction to instant gratification whether it be in the form of temptation of buying a billion dollar power ball lottery ticket as opposed to the payment of a Life Insurance premium and the impulsive get away to the Caribbean as opposed to squirrelling that un-anticipated bonus in your 401k. We should not be discouraged if there are no meaningful short term results replacing deferring present consumption for future `peace of mind` financial security. Even a friendly nudge would be a step in the right direction; and in the end what`s good for society will be good for business.