These are exciting times for actuaries.
On one hand, we are seriously getting our 鈥済eek鈥 on with the seemingly endless possibilities presented by the new hard science known as data analytics, or predictive modeling. On the other hand, there is tremendous actuarial interest in the decidedly softer science of behavioral economics (BE).
Indeed, this year鈥檚 SOA Annual Meeting & Exhibit in Austin, Tex., featured a number of sessions on BE, including with RGA鈥檚 own Dave Snell, Data Scientist, and . Both of these sessions dealt with the irrational behavior that stems from various hidden biases such as anchoring, confirmation bias, sunk cost trap and framing effects, to name a few.
Behavioral economics (or behavioral finance) caught public attention five years ago with the publication of Daniel Kahneman鈥檚 best-selling book Thinking, Fast and Slow. Since then, other books on the subject have been jumping off shelves, and a quick search on Amazon results in more than 14,000 hits. Clearly this topic has gone viral.
Public interest aside, actuaries are now taking a closer look at BE and how it applies to insurance: How do our own biases affect our actuarial work? How do customers鈥 biases result in 鈥減redictably unpredictable鈥 behavior? How fallible are our models in light of these behaviors?
RGA actuaries, in the U.S. and globally, have been considering the effects on insurance, and RGA Italy鈥檚 Roberto Rizzo offers the following thoughts (albeit from an individual insurance perspective) in his article from the September 2015 issue of RGA Quarterly: Europe. We hope you find the article and the SOA presentations thought-provoking, and we look forward to more discussion on this fascinating subject.
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