Professional judgment is a key aspect of an actuary's work, arguably the most important one.
Data and information are often imperfect, and we need to make decisions on pricing, design, strategy, risk management, and many other aspects despite the limitations we face.
We rely on our past experience, training, and knowledge to make these judgment calls. It seems mysterious, sacred and exclusive to very experienced actuaries.
We don't really get trained on actuarial judgment, rather it's something that's expected to magically come to us after slogging away for years.
Does it really have to be like that, or is there a better way? Can we work on developing and enhancing our actuarial judgment rather than leaving it to time and fate?
I think we can, and here are some thoughts I have on it.
Developing multiple perspectives towards a problem
As mathematicians, we know that there are many different approaches to solve a problem. We also take delight in learning these different approaches as it opens us up to new ways of thinking about it.
Likewise, when we do problem-solving/solution design at work, we can ask ourselves. Is this the only way to solve this, or is there another way?
What are the assumptions we made in arriving at this solution, and how would it change our result if those assumptions behave differently?
It is a common practice in pricing projects to do sensitivity and scenario analysis. It is worth going deeper into these scenarios to understand when they can occur, the impacts, the knock-on impacts to other areas of the business and so on.
What mitigations can we build in to our solution in case things don't go in our favour?
Reflective thinking - it takes time, and it may feel like we are idling away precious time. But it is worth taking a step back from the details of our work, sitting back, and reflecting on the forest rather than the trees.
Connecting and debating with like-minded peers
We should discuss these insights with like-minded individuals who enjoy these thought experiments, and may get even deeper thoughts (while strengthening our bonds with our like-minded friends).
By "like-minded" I don't mean people who think in the same way as we do, or people who agree with everything we say. On the contrary, people with whom we can have healthy constructive disagreements are much more crucial to us personally and professionally.
The stronger our connection the better it is, as we won't hurry to come to an agreement. We can explore our own path of thoughts and that of our friend(s), and in the process get a deeper and richer understanding.
This also leads to the next point...
Be conscious of blind spots and biases.
It is natural for us to have blind spots and biases (I want to say it is human, but AI can have worse biases than humans).
But these can be our Achilles heel when it comes to decision making. It's unlikely that we can remove them, but rather we can accept and check them from time to time.
We should have peers to check on our work and judgment - and indeed, peer-review is a critical element of actuarial work. Regardless of the years of experience that we have and vast knowledge we may claim as our own, getting a peer-review is a critical part of actuarial work.
Now it is not necessary that the peer-reviewer be more senior than the doer of the work, nor even is it required for the peer-review to be a domain expert (though that would be preferred). The most critical aspect is that the peer-reviewer understands the purpose, assumptions, limitations and the stakeholders of the work, and constructively critiques, and finds any biases and/or blind spots.
Embrace curiosity
An inquisitive, curious mind is the best tool for a learner. It's also an important tool for an actuary. An actuary will benefit from understanding what worked and what didn't work in the past. Where does this piece of work fit in the bigger picture? What's the business strategy that drives the need for this project? Who are the stakeholders impacted and how will they react?
All of this information and much more will guide the actuary to develop a keener actuarial judgment.
The power of actuarial judgment..
is not infallible. We actuaries are often wrong but the important aspect is "how wrong" were we, and whether we have put in appropriate mitigations. The quality actuarial judgment made in the past, cannot be judged by actual outcomes we see now, but only by the information and resources available to the actuary at the point the judgment was made.
Sharpening our judgment, we will be able to strategise our work more effectively and efficiently, and provide better strategies and outcomes for our stakeholders.
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