The ideal schizophrenic actuary

According to Philip Zimbardo, human beings - that includes actuaries - develop a specific attitude towards time (Time perspective).

In The Time paradox Zimbardo explains that people turn out to be primarily past, present or future orientated. Each perspective has a detailed orientation (focus):

Based on research and his own definition of a 'healthy thinkstyle' in life , Zimbardo developed an ideal time perspective score (red dots):

If you wonder what your Time perspective score is, take the test:

Take the Zimbardo Time Perspective Inventory

Actuary Time Perspective Paradox
Probably we all more or less agree with the position of the red dots as definition of the ideal situation. However, as an actuary it is our job (duty) to focus exactly on the opposites of that ideal situation.

In order to achieve a sound advice, we have to look seriously at the negative past experiences. We can't afford to dwell in hedonism or to deny a fatalistic view in the present, we have to be realistic!.
And last but not least it's our professional responsibility to estimate the future in a prudent way.

The 'Actuary Time Perspective Paradox' challenge is to develop an ideal personal time perspective with regard to our personal lives and an opposite professional time perspective at the same time, as it comes down to our professional life as an actuary.

So, keep being a happy ideal schizophrenic actuary!

Simpson's paradox

Let's take a look at a simple fund management score card.

	Fund 1			Fund 2			Fund 1+2
	Return	Assets	Rate	Return	Assets	Rate	Return	Assets	Rate
Fund manager A	8	200	4,0%	72	800	9,0%	80	1000	8,0%
Fund manager B	48	800	6,0%	22	200	11,0%	70	1000	7,0%
Total Fund managers	56	1000	5,6%	94	1000	9,4%	150	2000	7,5%

Clearly Fund manager B performs 2% better in both Fund 1 and 2 than Fund manager A. However, across both funds, Fund manager A seems to perform better.

This effect is called Simpson's paradox.

Keep in minds:

• Always be critical in ranking mix funds (managers) on overall performance
• Even if the risk profiles of Fund 1 and 2 are the same, Simpson's paradox may show up
• Besides choosing the right Fund manager, choosing the right asset mix is just as important

Another nice example of Simpson's paradox is:

Good for Men, Good for Women, Bad for People

	Woman			Man			People
	Survived	# Start	Rate	Survived	# Start	Rate	Survived	# Start	Rate
Treatment A	3135	3300	95	4020	6700	60	7155	10000	72
Treatment B	7395	8700	85	650	1300	50	8045	10000	80

A cohort or a series of people receive treatment A, and another cohort receives treatment B. The survival rate of treatment A is better for woman as well as for man, but not for people!

Simpson's Paradox Actuary Links:

1. Ratemaking: The CEO asks the actuary...
2. Smokers and survival rates
3. Credit Score really explains Insurance Losses?