In the run up to our webinar on 27 March, Nick Foster considers whether a broader approach to economic thinking, beyond the prevailing orthodoxies, needs to be part of the actuarial toolkit
Actuaries have, perhaps surprisingly considering their focus on uncertainty, tended to favour uncontested content in their core curriculum. Mathematics, founded on proofs as true today as when they were discovered, and statistics, which deal with uncertainty by developing ever more precise bounds around it, comprise two thirds of the core principles syllabuses. However, the third part of the core curriculum – Core Business – and indeed the economic content in CM2, has proved more problematic in this regard.
Richard Feyman famously wrote that science is the belief in the ignorance of experts.1 Science is in the making he asserted, and ‘belongs to the (unknown, yet to be discovered) future, while expertise is based on the past, with in-built obsolescence’. In Fixing Economics2 George Cooper makes a powerful case that economics is in one of Thomas Kuhn’s states of pre-revolutionary scientific crisis.3 This is where ‘experimental evidence and the predictions of scientific models part company. Different groups try to solve different discrepancies with different ad hoc fixes… Over time the field splinters into many competing schools of thought.’
For actuaries, this poses a problem. Philip Tetlock’s research4 has demonstrated that forecasting is best carried out by foxes, who he defines as knowing a little about many things, sceptical about grand theories, and ready to adjust their ideas based on actual events. Hedgehogs, on the other hand, have one grand theory (in economics, this would be a school of thought), which they often feel confident to extend into other areas for which it was not originally designed.
Although most actuaries would say they model rather than forecast, as advisers in the face of future uncertainty they are generally foxes, and this is borne out by their core curriculum, which tends to introduce many concepts at a fairly high level, with the assumption that they will come back to learn more about any of these concepts or techniques if they need to use them professionally. Going down the rabbit hole of the competing economic schools of thought on any given economic topic, which is the route proposed by the pluralist or heterodox economists, has generally been seen as running counter to our vulpine traditions. Far better to pick the prevailing orthodoxy and look for elements within it that can be taught in a ‘values-free’ or positivist way, avoiding ‘normative’ areas which require ethical judgements to be made. Most economics textbooks in widespread use will gladly assist with this aim, and the IFoA has chosen one such textbook, Economics by Sloman et al,5 as its source for nearly all of CB2.
This may have been acceptable in the role economics originally fulfilled within the actuarial syllabus, ie as background reading to the more directly relevant (as it was seen at the time) topic of investment. However, as the scope of the economics within the syllabus has broadened, it has, we believe, unintentionally pushed us down a cul-de-sac, without links to most of the networks of thought we need in order to think through our most urgent current challenges of climate change and sustainability, economic and social justice, and inclusion within political systems.
We explored this emerging topic and how it relates to actuarial work at the opening webinar in our Presidential Speaker Series which was held on the 27 March. A recording of the webinar, An Introduction to alternative economic thinking is available to view on the IFoA Virtual Learning Environment.
