Inside Track ERIC P. HARDING
Prediction and Its Follies
WE HUMANS ARE CREATURES OF PATTERNS. We learn by noticing patterns in our surroundings, then making informed applications of those patterns in new scenarios.
One common example of an observed pattern that lends
itself to misapplication is the “preterite T.” As toddlers,
we discover that verbs take tenses—I turn the page now,
I turned it yesterday, I’ll turn it tomorrow. But that pesky
past tense “-ed” isn’t used in many irregular verbs … those
verbs that are among the most commonly used words in our
language. So when a kid says “I goed down the slide,” while
we may chuckle at the error, we understand why the mistake
was made (and truthfully,
errors are actually a sign
of a deeper understanding
of linguistic rules).
Just because we’ve noticed a pattern, that doesn’t
necessarily mean we can
successfully predict outcomes in new scenarios.
Actuaries, of course, are
adept at examining past
experience and applying the lessons learned to new applications … but there’s a limit to how precise, how perfect such
a prediction can be.
This issue’s features explore that idea of prediction—how
themes interrelate, the practical limitations of prognosticating,
and when forecasting falls apart.
In “An Imperfect Storm” (page 20), author Jeff Reeves looks
at the technological state of the weather forecasting system
in the United States. Weather modeling helps predict where
and when cataclysmic storms will strike, allowing those in
the predicted path of the destruction to better prepare. But
the United States has fallen behind other countries when it
comes to forecasting infrastructure, Reeves illustrates—and
the unpredictable nature of a changing climate only amplifies
the need for better forecasting technology.
Our second feature, “The Ticking Clock” (page 28), looks
at so-called doomsday factors—geopolitical risk, a growing
population, pandemics, economic inequality, and so on—and
explores how these factors may intertwine in unpredictable
ways. Author Wes Edwards paints a dire picture of an un-
certain world, but he stresses that understanding these risk
factors—and pondering how they may interact—can lead to
better and more thoughtful risk-mitigation efforts.
Our final feature in this issue, “Patterns and Noise” (page
34), looks at an informational metric called the Kolmogorov
complexity, exploring how
its theoretical concept can
be applied to real-world
tasks. Actuaries are accustomed to working with
complex models and predictive tools. In order to
improve a business unit’s
profits or productivity,
actuaries are often asked
to refine those models to
increase the quality of the
output. But sometimes the incremental gain—in terms of
increased profits or predictive power—does not justify the
additional costs—in terms of time of opportunity cost.
Also in this issue, Academy President Bob Beuerlein
provides the final in his “Professionalism in Action” series,
“Setting the Temperature to ‘Ethical’” (page 16). In it, he
closes the circle on a theme he’s been discussing throughout his presidential term—why it’s important to act more
like a thermostat than a thermometer. To do so, Beuerlein
says, actuaries can use the vast professionalism resources
established by the Academy—including the Actuarial
Standards Board and the Actuarial Board for Counseling
and Discipline—in order to resolve ethical dilemmas,
and they can rely on the interconnected professionalism
framework to underpin their work.
Thank you for picking up this issue. I predict you’ll find
something interesting on the pages that follow.