Article from: The Actuary Magazine

February/March 2013 – Volume 10, Issue 1

A Point of View Where is Our Nate Silver?

By Jay M. Jaffe

In case you missed the 2012 nor do you need to have an advanced But Silver did not just become a rock star presidential election in the United States, degree in statistics to appreciate the work level statistician as a result of his 2012 one election guru, Nate Silver, batted done by Silver. Silver himself reminds election predictions—he did two other nearly 1.000 in predicting the state-by- the users of his work that he presents the things. First, Silver’s work has changed the state presidential results and just missed probabilities of election results rather election landscape. For the foreseeable predicting the winners in all of the 33 than a guarantee as to which candidate future, election predictions will be made Senate races. Silver’s FiveThirtyEight blog will win any particular election. In fact, using modeling tools and data such as used is now the standard by which all other in the state of North Dakota the eventual by Silver. And, second, he has established election predictions are measured. winner for a Senate seat had less than a in the minds of the public the credibility 10 percent chance according to Silver of statistical models as a tool for predicting For most people, statistical models have but, nevertheless, she won the race. As all political events. This latter accomplishment been and will probably always be a actuaries should know, sometimes a low is not only significant in and of itself, but “black box.” However, you don’t have probability event occurs and becomes also because it offers a golden opportunity to be a certified mechanic to drive a car “the exception which proves the rule.” for other statistical-based professions, such Sears’ Silver

In early December 2012, Paul DePodesta was appointed probably having read Moneyball and/or seen the movie, it is to the board of Sears Holding Corp. DePodesta’s full-time job is the doubtful if the current members of Sears’ board have much VP for player development of the New York Mets baseball club, a firsthand knowledge of analytic business tools. On the other Harvard trained economist, and the person who developed the hand, it is almost certain that the members of Sears’ board statistical operational plan which nearly catapulted the 2002 Oak- have had direct contact with actuaries in areas such as pen- land A’s into the World Series. He is not a retail business expert! sion plans or health insurance. Yet, rather than selecting an actuary to join the board and bring analytic thinking to their Like the Oakland A’s, Sears is now a retailing underdog. But organization, Sears chose DePodesta. by appointing DePodesta to its board, it openly acknowledges that it needs new tools to manage its business along with an From this point forward, Sears will know exactly where to find expert who can explain these tools to the board. Other than its Nate Silver. It will have to look no further than its boardroom.

44 | The Actuary | February/march 2013 Let’s Talk my opinion, is that presently we have Let’s start a dialogue about how the SOA can be involved in this few members who process. Please send us your suggestions for finding an actuarial version of have been able to Nate Silver. Send an email to [email protected] or join the conversation at convert complicated http://blog.soa.org/ actuarial concepts Jay M. Jaffe into meaningful and understandable public communications and, as a result, advance as actuaries, to capitalize on this realization national “Great Risks Commission” for the acceptance of the profession by the to improve how they interact with their failing to adequately warn residents of public into areas in which we have expertise. various constituencies. a 2009 earthquake in which more than 300 people died. These convictions The main purpose of this article is to So, why does the actuarial profession need clearly reflect a misunderstanding of the stimulate the actuarial profession into a Nate Silver? There are at least two good capabilities of statistics and statistical taking the steps needed to find our Nate reasons it would be helpful to have one or predictions. But, the convictions also serve Silver. Creating our Nate Silver requires more actuaries with the public presence as a strong reminder that to minimize the adopting several initiatives because we and skills of a Nate Silver. The first reason possibility that governments or the public can’t, nor do we want to, clone Nate Silver. is offensive and the second is defensive. take out their frustration on anyone Developing people with Nate Silver’s skill making either a statistical prediction set relies on a combination of factors The first reason is to enhance the reputation which turns out to be “incorrect” or is including training, education, experiences, and acceptance of the actuarial profession by not presented because an event has a low etc. It will also not happen overnight. We the general public as well as the people who probability of occurrence, it is imperative also need to recognize that we need to influence and set public policy. The actuarial to explain to the users of information build many potential Nate Silvers because profession has the expertise to bring better that the statisticians are not making a it is impossible to predict whether a specific solutions to many individual and societal guarantee that a particular event may or candidate will eventually develop into a problems (e.g., Social Security, health care, may not happen. A Nate Silver type of Nate Silver type person. etc.) which operate on actuarial principles. person will go a long way to imparting the But we can’t contribute at a high level to capabilities of actuarial science because So, “Where’s our Nate Silver?” Maybe in these areas if we remain a mystery profession. they have the skill set to convey the a year or two we’ll be able to answer this For example, when’s the last time (or the first concepts of statistics in advance of any question. A time) you saw an actuary on a popular (rather catastrophic event and when such events than technical) talk show discussing issues occur, to explain that what happened was Jay Jaffe, FSA, MAAA, is president, Actuarial which are based on actuarial concepts? On not an inaccurate statistical prediction. Enterprises Ltd. He can be contacted at [email protected]. the other hand, through his presentations If the actuarial profession is concerned Nate Silver has demonstrated that technical about its reputational risk, and each and concepts and people can be accepted by the every one of us should have this concern, general public. having a Nate Silver on our team is the first step to minimizing this risk. The defensive reason for finding a Nate Silver is readily illustrated by recent So, how do we find our Nate Silver? The events in Italy, even though this is an good news is that the actuarial profession extreme example. A court in L’Aquila, has an abundance of well-qualified people Italy convicted seven members of a to become Nate Silvers. The bad news, in

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