Actuarial Readability

As an actuary, accountant or financial consultant, deep knowledge, expert skills and experience are key to writing an interesting article or paper advice.

However, no matter how much you're an expert, finally you're as good as you can get your message across to your audience.

The art of the expert is to simplify the complexity of his/her research into simple, and for the audience understandable text.

In practice this implies that the expert will have to measure the readability of his papers before publishing.

The two most important issues to tackle are 'readability' and 'text-level'.

Although there are many sorts of tests, both topics are simply covered by the so called  Flesch-Kincaid Readability Test.

Let's take a look ate the two simple test formulas of this test:

Flesch-Kincaid Readability Test Flesch Reading Ease Score FRES = 206.835 – (1.015 x ASL) – (84.6 x ASW) Flesch-Kincaid Grade Level FKGL = (0.39 x ASL) + (11.8 x ASW) – 15.59 With: ASL  = average sentence length number of words divided by the number of sentences ASW = average number of syllables per word number of syllables divided by number of words

Texts with a FRES-score of 90-100 are easily understandable by an average 5th grader and scores between 0 and 30 are best understood by college graduates.

Some examples of readability index scores of magazines:

- Reader's Digest Magazine: FRES = 65

- Time magazine: FRES = 52

- Harvard Law Review: FRES = 30

The FRES-test has become a U.S. governmental standard. Many government agencies require documents or forms to meet specific readability levels. Most states require insurance forms to score 40-50 on the test.

Where to test your documents?

It's easy to test your text online or even in a Microsoft Word-Document.

Besides matching the FRES and FKTL scores in your document, as a guideline try to establish the next English text-test-characteristics

• Average sentence length 15-20 words, 25-33 syllables and 75-100 characters.
• Characters per word: < 7
• Syllables per word: 1.5 - 2.0
• Words per sentence: 15 - 20

This blog text resulted in scores:

- Flesch-Kincaid Reading Ease 64.7

- Flesch-Kincaid Grade Level 7.2

- Characters per Word 4.4

- Syllables per Word 1.5

- Words per Sentence 11.8

Example

As an example we test the readability of one of the articles of the Investment Fallacies e-book, as published by the Society of Actuaries (SOA) :

The Best Model Doesn’t Win.

By Max J. Rudolph, published in 2014

The readability outcome is as follows:

Readability Score 'The Best Model Doesn’t Win'

Reading Ease
A higher score indicates easier readability; scores usually range between 0 and 100.

Readability Formula	Score
Flesch-Kincaid Reading Ease	48.1

Grade Levels
A grade level (based on the USA education system) is equivalent to the number of years of education a person has had. Scores over 22 should generally be taken to mean graduate level text.

Readability Formula	Grade
Flesch-Kincaid Grade Level	10.3
Gunning-Fog Score	12.9
Coleman-Liau Index	14.2
SMOG Index	9.5
Automated Readability Index __________________________	10.2 ____
Average Grade Level	11.4

Text Statistics

Character Count	7,611
Syllable Count	2,531
Word Count	1,495
Sentence Count	98
Characters per Word	5.1
Syllables per Word	1.7
Words per Sentence	15.3

Actuarial Texts

With regard to public financial or actuarial publications a FRES-score of around 50 assures, that your publication reaches a wide audience. Even in case you're publishing an article at university level, try to keep the FRES-score as high as possible.

If you write an academic paper, you may use the online application Word and Phrase to measure the percentage of academic words. Try to keep this percentage below 20% to keep your document readable. The publication 'The Best Model Doesn’t Win' would score 17% on academic words......

Finally

Next time you write a document or make a PPT presentation, don't forget to

Test Your Documents's Readability

Measure the Percentage of Academic Words

Links:

- Test your text online

- Readability of a Microsoft Word-Document

- WORD AND PHRASE

- The Average Sentence Length
- Results of Readability Tests for Mathworks Math Explorations Textbooks 
- ATOS Text Level Analyzer
- Readability Calculator

Test: Rational Thinking in a Crisis

End October 2007 my wife and I were flying from New York to San Diego. Due to an overheated engine our Captain took the one and only right decision: an emergency landing (at Chicago). Thankfully, a successful emergency landing.

Although - for a split second - we were disappointed that we would not arrive at San Diego that night, we immediately realized that our goal was no longer arriving at time, but surviving!

 How do we respond in crises situations? Take the next simple test to find out.

Original Source: Risk & Return

Risk Manager Test

Risk Manager is THE profession of the future.

For all (young) actuaries, econometricians and other talented whizzkids who are considering to become a Risk Manager, here's the ultimate test...

Find out if you really have more risk management talent than an average Duck Risk Manager.

Perhaps even some more experienced Risk Managers dare to risk their reputation by taking the test as well........ 

Risk Manager Test 

Imagine you're a risk manager during World War II...

Allied pilots are bombing targets in Germany. Most bomber airplanes come back with heavy damage, some even don't come back at all. Therefore it is considered important to protect bombers with extra armor.

As there is only very limited supply of retrofitting armor, you as a risk manager are hired to determine where this extra armor is best placed on a plane.

In order to find out the vulnerable parts of the plane, you mark every bullet hole of every plane that comes back from a bombing mission as a red dot on a plane-bullet-hole diagram.

After having observed more than 50 planes coming back, you end up with the next diagram:

Instruction
Please point out in detail the most important places where you as a risk manager, would put the armor on the plane.

READY?.......

To find Out if you passed the Risk Manager Qualification Test please press on the answer button.

ANSWER

Aftermath

The risk manager in this test actually exists. During WWII, the Hungarian-born mathematician Abraham Wald undertook a study with the British Air Ministry to use statistical analysis to help protect bombers flying over enemy territory. The data to be crunched included the number and location of bullet holes on returning aircraft, and the goal was to use this information to determine where to best add armor to the plane's structure.



Sources & Related Links
- Abraham Wald : original Report
- Abraham Wald's Work on Aircraft Survivability by Marc Mangel 
- The hole story: What you don't see will kill you 
- UK Bombers in WWII (pictures)

Small Population Compliance Samples

My last post, Compliance Sample Size, demonstrated the set up of an efficient sample method for compliance tests in case of large populations.

What if population size is relatively small ?, some actuaries asked me....

In this case you can ( instead of the beta distribution) make use of the hypergeometric distribution for calculating confidence levels.

Here's the same example as I used in my blog 'Compliance Sample Size', but now for a population of 100 .


'Compliance Check' Example (N=100)
As you probably know, pension advisors have to be compliant and  meet strict federal, state and local regulations.

On behave of the employee, the sponsoring employer as well as the insurer or pension fund, all have a strong interest that the involved 'Pension Advisor' actually is, acts and remains compliant.

PensionAdvice
A professional local Pension Advisor firm, 'PensionAdvice' (fictitious name), wants 'compliance' to become a 'calling card' for  their company. Target is that 'compliance' will become a competitive advantage over its rivals.

You, as an actuary, are asked to advise on the issue of how to verify PensionAdvice's compliance....... What to do?

• Step 1 : Compliance Definition
  First you ask the board of PensionAdvice  what compliance means.
  After several discussions compliance is in short defined as:
  
  
  1. Compliance Quality
     Meeting the regulator's (12 step)  legal compliance requirements
     ('Quality Advice Second Pillar Pension')
     
     
  2. Compliance Quantity
     A 100% compliance target of PensionAdvice's portfolio, with a 5% non-compliance rate (error rate) as a maximum on basis of a 95% confidence level.
  .
  
• Step 2: Check on the prior believes of management
  On basis of earlier experiences, management estimates the actual NonCompliance rate at 8% with 90% confidence that the actual NonCompliance rate is 8% or less:
  
  If management would have no idea at all, or if you would not (like to) include management opinion, simply estimate both (NonCompliance rate and confidence) at 50% (= indifferent) in your model.
  
  
• Step 3: Define Management Objectives
  After some discussion, management defines the (target) Maximum acceptable NonCompliance rate at 5% with a 95% confidence level (=CL).
  
  
• Step 4: Define population size
  In this case it's simple. PensionAdvice management knows for sure the portfolio they want to check for compliance, consists of 100 files: N=100.
  
  This is how step 2 to 4 look in your spreadsheet...
  
  
  
  
  
  
• Step 5 : Define Sample Size
  Now we get to the testing part....
  
  
  
  
  
  Before you start sampling, please notice how prior believes of management are rendered into a fictitious sample (test number = 0) in the model:

• In this case prior believes match a fictitious sample of size 25 with zero noncompliance observations. 
• This fictitious sample corresponds to a confidence level of 77% on basis of a maximum (population) noncompliance rate of 5%.

[ If you think the rendering is to optimistic, you can change the fictitious number of noncompliance observations from zero into 1, 2 or another number (examine in the spreadsheet what happens and play around).]


To lift the 77% confidence level to 95%, it would take an additional sample size of 20 - with zero noncompliance outcomes (you can check this in the spreadsheet).
As sampling is expensive, your employee Jos runs a first test (test 1) with a sample size of 10 with zero noncompliance outcomes. This looks promising!
The cumulative confidence level has risen from 76% to over 89%.


You decide to take another limited sample with a sample size of 10. Unfortunately this sample contains one noncompliant outcome. As a result, the cumulative confidence level drops to almost 75% and another sample of size 20 with zero noncompliant outcomes is necessary to reach the desired 95% confidence level.

You decide to go on and after a few other tests you finally arrive at the intended 95%cumulative confidence level. Mission succeeded!

Evaluation
The interesting aspects of this method are:

1. Prior (weak or small) samples or beliefs about the true error rate and confidence levels, can be added in the model in the form of an (artificial) additional (pre)sample.
   
   
2. As the sample size increases, it becomes clear whether  the defined confidence level will be met or not and if adding more samples is appropriate and/or cost effective.
   

This way unnecessary samples are avoided, sampling becomes as cost effective as possible and auditor and client can dynamically develop a grip on the distribution. Enough talk, let's demonstrate how this works.

Another great advantage of this incremental sampling method is that if noncompliance shows up in an early stage, you can

• stop sampling, without having made major sampling cost
• Improve compliance of the population by means of additional measures on basis of the learnings from the noncompliant outcomes
• start sampling again (from the start) 

If - for example -  test 1 would have had 3 noncompliant outcomes instead of zero, it would take an additional test of size 57 with zero noncompliant outcomes tot achieve a 95% confidence level.  It's clear that in this case it's better to first learn from the 3 noncompliant outomes, what's wrong or needs improvement, than to go on with expensive sampling against your better judgment.

D. Conclusions

On basis of a prior believe that - with 90% confidence - the population is  8% noncompliant, we can now conclude that after an additional total sample of size 40, PensionAdvice's noncompliance rate is 5% or less with a 95% confidence level.

If we want to be 95% sure without 'prior believe', we'll have to take an additional sample of size 25 with zero noncompliant outcomes as a result.

E. Check out: DOWNLOAD EXCEL
You can download the next Excel spreadsheets to check the Demo or tot set up your own compliance test:

- Small population Compliance test DEMO
- Small population Compliance test BLANK
- Large population Compliance test

Enjoy!

How Rewards Pay Out

Let's take the 'Candle Test' as constructed by the psychologist Karl Duncker (1930).

Just take a look at the materials on the left picture.

A candle, a box of thumbtacks, and a book of matches.

Here's the simple task:

Attach the candle to the wall so that it doesn't drip onto the table below.

(Please, don't read any further until you solved this challenge....)

Solution

Here's the solution:

Empty the box with thumbtacks. Place the candle in the emptied box. Fix that box to the wall using the thumbtacks. Place the candle in the box.

If you managed to find this solution (without cheating) within 4 minutes, you're still an enlightened actuary.

If not? Don't mind, things will get better after reading this blog.

To find the solution you had to overcome what is called “functional fixedness”: You had to see beyond the thumbtack box as purely a container for the thumbtacks.

Rewarding Performance
In the sixties Sam Glucksberg used the 'Candle Test' to test the impact of extrinsic motivational factors on the problem solving ability.

Glucksberg created two groups of participants. The first group was told they would be timed to establish norms for how long it would typically take people to solve this sort of puzzle. The second group of participants were offered $5 each, if the time they took to solve the problem was in the top 25% of all those tested. The fastest achievement would be rewarded with $20.

The outcome of this experiment was that it took the extrinsically incentivized second group on average three and a half minutes longer to solve the problem. Obviously the incentives narrowed the participants minds and blocked them to think literally 'out of the box'....

From this experiment it became clear that rewards fail and work contrarily in case of complex situations.

Similar experiment....
Then, Glucksberg took a similar experiment in a slightly different way.

He presented two new groups the situation on the left picture.
Can you predict the outcome this time?

This time, the rewarded group defeated the non-incentivized group by miles....

Why???? Because the tacks were OUT of the box !!!!

By placing the thumbtacks out of the box and placing the thumbtack box empty on the table, Glucksberg had changed the problem.

Instead of achieving a heuristic task (i.e. a complex task that requires analysis and experimenting with possibilities to develop a solution), the problem was reduced to a more algorithmic problem (i.e. the solution comes down to a set of simplistic steps down a single pathway to one conclusion).

Conclusion
To summarize: financial short-term rewarding of complex tasks leads to output reduction instead of a better performance.

More than actuaries, professionals like quants, investment managers and bank managers are rewarded on short-term output, while - at the same time - their professional challenges and objectives are complex like a Gordian knot.

A way out

If we want to get out of the current economic crisis, we'll have to stop rewarding short term results one way or the other. Our complete (economic) system should be rebased on rewarding long(er) sustainable results and well calculated risk. Don't wait any longer, just start today at your department.

Excuses....
The issue of "not getting the 'right' professionals if we don't pay enough" is a fable. No matter how professionals like CEOs, Bank managers or actuaries are: if they just go for the short-term money and aren't intrinsically motivated to make this world a little better with their gifts and skills, please let them leave.

Tip: Include rewarding in your risk models!

Let's conclude with an interesting video by Dan Pink who examines the puzzle of motivation, explaining that traditional rewards aren't always as effective as we think.




Related/Used sources:
- Carrots and sticks
- Functional_fixedness

What kind of actuary are you?

We all know plain actuarial skills are not enough to be(come) a successful professional actuary.

Time and time again we have to conclude that it takes more than average communication skills to overcome the persistent communication gap between actuaries and their audience.

In a 2008 workshop Matthias Bonikowski (Senior Manager at Milliman) presented the outcome of a German survey.

Here are the stunning results:

Proposition		Actuaries' opinion	Non-Actuaries' opinion
1.	Actuaries are pessimists	85%	85%
2.	Actuaries are not opportunists	70%	70%
3.	Actuaries communicate clearly and transparently	15%	5%
4.	Actuaries think out of the box	50%	15%
5.	Actuaries live in an ivory tower	10%	50%

The Copy Paste Actuary

From the Bonikowski survey it's clear that non-actuaries (including: board managers, sales directors, product managers, coaches and headhunters) don't speak highly of actuaries.

It looks like most of the 'actuary species' are perceived as a kind of 'Copy Paste Actuary'. One who's not able to think out of the box.

We are congenital pessimists, trained to do a sort of one trick pony act. An act we can't explain or communicate, like 'normal' people seem to be able to do. 

On top of this  - just like the famous Baron Münchhausen who was unable to escape from a swamp by pulling himself up by his own hair - we actuarial poor devils seem unable to lift ourselves to the next level.

We're obviously trapped in our 'non-communication' addiction, smoke gets in our eyes and nobody around us seems capable of helping us to move from our alien planet to the world of real people, business and social life.

The non-actuaries' view in Bonikowski's survey emphasizes this image...

The non-actuaries' view
The non actuaries' view on actuaries comes down to::
- They explain complex terms as complex as possible
- Inability to make actuarial things clear to non-actuaries
- They are not able to take a bird‘s eye view
- They are missing empathy for non-actuaries

As possible reasons for this view, non-actuaries notice:
- They are isolated from decision processes…
- High expectations about actuarial knowledge – deep and broad
- Communication skills are not a part of actuarial education

As a 'solution', 7 suggestions for successful communication are developed:

1. Point out key messages
2. Leave out details
3. Use more pictures and examples
4. Explain more in “black and white”
5. Avoid academic language/technical jargon
6. Pick up non-actuaries earlier
7. Define target-group specific communication rules

As we all know, these issues and solutions are not really new or surprising. Why is this issue of non-communication and 'Ivory Tower Effect' so hard to solve?

Actuaries are invisible

In 'My Opinion' of the Actuarial Review 2010, Grover Edie shows that we 'actuaries' are not in any way involved in important (political) decisions.

Important decisions that society has to take in coping with challenges as aging, longevity, health, etc.  Grover Edie explicates: 'they don’t ask us (actuaries) because we are not visible'.

My view is that the 'invisibility of  actuaries' is more or less a global issue.

Undoubtedly this theme of invisibility finds his roots in the actuary's attitude. This is well illustrated by Grover Edie's summarized reactions of actuaries on the issue:

• “If I do good work, others will ask me for more of it.”
• “I don’t need to advertise or to sell my work: My work speaks for itself.”
• “I certainly don’t need to sell others on the value of my work, and if they are too stupid to know the value of what I do, that’s their problem.”

Supply and Demand
Grover Edie thinks that this underlying 'laissez-faire  attitude' is the basic problem. A problem that - in his view - can be solved with a simple sales training approach.  With all due respect...., the invisibility of actuaries has probably a deeper cause than this superficial laissez faire attitude only, that is mainly the effect of the Law of Supply and Demand.

Most actuaries had to study hard to achieve their goal of becoming a qualified actuary. Once they'd become an actuary, there was, still is and will be, more than enough well paid work. In other words: The Demand side of the market market exceeds (by far) the Supply side of the market. Why should actuaries develop a commercial sales attitude if they don't need it?

In this situation the risk that an actuary eventually becomes a 'Mirror Actuary', is not inconceivable.

A mirror actuary, one who just reflects and gives back what the environment offers him.

He looks a bit like the invisible actuary. Without a real own opinion,  the mirror actuary just reflects the financial impact and consequences of decisions taken by others.  He  acts without sincere social engagement or conviction. Hence he's unable to generate a critical positive feedback viewpoint, necessary to make what its takes, the difference.

What does it takes?
Convincing actuaries to become more visible and socially or publically involved, takes more than a professional sales approach. Actuaries have to be made conscious of why and where they are and what they really want to achieve in life.
In other words:

What kind of actuary would you (really) like to be?

In this case the answer is not a traditional one like 'Pricing Actuary', 'Pension Actuary', 'Health Actuary; or the humorous answer 'very kind'. No, the answer to this question hits our actuarial soul....

The good old actuarial horse
Would you like to be the well paid 'actuarial horse' in front of the wagon, that gets his orders from the coachman and does his calculation work every time he's being asked to do deliver some?

Or do you want to sit on the wagon, next to the coachman, discussing and advising on the best route of the wagon?


Answering these simple questions is key in solving the persisting actuarial mind setting issue.

Visibility? Select at the gate!
This invisibility issue deals with the fundamental structure of an actuary's personality.  It's not something that can be easily learned or changed during or after achieving a (long term) study. If we want visible actuaries who are socially and publically involved, we'll have to select them on that attitude at the gate, before they undertake an actuarial study. Just like we test their arithmetic talent and other mental capacities, before actuaries start their study.

The Dancing Actuary

If we don't act upon this new 'visibility insight' and keep trying to beat the famous dead horse, things will never change.

In this situation there's a tricky risk that we enjoy our salary and comfortable position so much that we suppress our critical view and potential power to change things. In which case we become totally dependable on our monthly paycheck and the opinion of our boss or manager.

In doing so, we might gradually become implicitly susceptible to extortion and eventually things will escalate.

Ultimately in this situation, we could even develop to a kind of 'dancing bear', in this case a 'Dancing Actuary'.

Try to keep your eyes open. If you feel completely 'chained' or if our environment constantly forces you to support actions or decisions you can not really account for, seek help or step out before it's too late.

The Wise Actuary

Wrapping up this warning blog about invisibility, you could get the wrong impression that black swan actuaries doe not exist at all.

Of course we know better. There are lots of wise and visible actuaries around the world and as you've made your way to the end of this blog, you'll be probably one of them....

Wise actuarial owls that want to make the difference in life and society. Actuaries who are not for sale and who know their personal limits. Actuaries that know when and where to say 'no' or 'yes'.

Actuaries that don't just want to talk about a better world, but want to act(uary) on it.

Are you that 'wise actuary', who's visible, socially active and leading society to the next level?

Test

If you want to find out if you're a wise, invisible, mirror or dancing actuary, take the next 5 minutes 15 questions test called:

What kind of actuary are you?

Good luck with this 'actuary stress test'!


Related links/ Resources:
- Workshop Actuarial Communication (2008) Presentation (pdf)
- Article: They Don’t Ask Us Because We Are Not Visible
- Test:What kind of actuary are you?

Actuary Professional Test

So you think, because you're an actuary, you must be a top professional....

Well.... Put yourself to the test by taking the next two minute IQ-test.
Remember: Don't cheat!

2 Minute Intelligence Test

Out of the Box Actuary

So you're one of those rare actuaries who thinks he really can think outside of the box?

Well, this is your lucky day. Out of the dark chambers of Actuarial Science, professors developed a brand new test for financial experts like actuaries, to find out if you qualify for the new title

Actuarial Master
Out of the Box Thinking

Most remarkable is that this test consists of only one simple question.

If you manage to give the right answer to this question within 10 seconds you'll qualify for the title. If it takes up to one minute, you'll qualify for your bachelor's degree. If it takes longer, don't be ashamed, just stay "Qualified Actuary".

However, if you don't succeed at all, simply change your title to Actuweary...., nobody will notice ;-).

In case you need help to find the right answer, you are allowed to use this tip.

Now, I will no longer keep you in suspense, here is the key question:

Just click the picture, to find out the right answer!

If you unexpected failed to come up with the right answer, please read the next fabulous blog to escape your expert view:

Are you stuck in a rut? Run from the experts!

Risk IQ Test

What's your Risk IQ?

In a few minutes you'll know by taking this RISK IQ Test.

Actuaries are often born CROs (Chief Risk Officers), so this test will probabely be a peace of cake for any actuary with CRO aspirations.....

Simply scroll through the next Powerpoint presentation from Fintools.

Each slide contains a multiple choice question.
Think about the answer and then scroll (click on the right part of the presentation) to the next slide for the final answer...
RiskIQ

Hope you succeeded....

If not... get some training at Fintools

Original Source: Fintools

Actuary Core Qualities

Apart from an official outstanding actuarial education, what core qualities does an actuary need to be successful?

Summarized, here are some of the main qualities:

• Great Mathematical skills and experience
• Outstanding multi level, oral and written communication skills
• Interpersonal and social skills
• Being able to downgrade complex problems to simple decisions to be taken
• Self-motivated, ambitious, creative, independent, team worker
• Conflict solving capabilities; Empathic but also decisive
• Professional integrity, commercial outlook
• A professional discussion partner for professionals in other areas as Pension, Investment, Health, Risk, Governance, ICT, Finance, Administration, Marketing, HR, Legal & Fiscal affairs, etc.

To put is simply: an actuary has to be a kind of 'White Raven', a 'one in a million professional'.....

However, actuaries are just like humans, they do not only have their core qualities, but also their pitfalls.

Besides, how can you find out what your core quality is?

Core Quality Test
Well, the simple answer is that -thanks to Daniel Ofman - you can find out in a one minute online test what your core quality is.

This test doesn't only defines your core quality, but also your pitfall, challenge and allergy.

TAKE THE CORE QUALITY TEST

Now you know what your qualities and pitfalls are, you may as well start working on them!

Links: Core-Qualities
Sources : Wiki, RSS,