What is simplicity? What's the power of simplicity?
Goethe
It was
Johann Wolfgang von Goethe ( listen), a German writer (poet), but also a
polymath (!), who
stated:
And indeed Goethe was right, in (actuarial) science and practice it's the challenge of overcoming (transcending) this paradox of simplicity and complexity.
The art of actuarial mastership
As models become more and more complex, it takes the art of actuarial mastership to condense this complexity into an outlined, understandable and (for the audience) applicable outcome.
A 'best practice example' of condensing complexity into a powerful inspiring statement, is Einseins famous equation E=MC
^{2 }:
Like Paulo Coelho states in his
blog about Einstein:
A man (actuary) should look for what is, and not for what he thinks should be. Any intelligent fool can make things bigger and more complex…
It takes a touch of genius – and a lot of courage to move in the opposite direction.
Or, to quote Einstein:
Everything should be as simple as it is, but not simpler
How to cut through the actuarial cake?
Just three simple examples on how to cut through the complex actuarial cake. Examples that might help you to simplify complexity:
1. Think more simple
A perfect example of 'thinking more simple' is finding the solution of the next math problem (on the left), grabbed from an old high school math test.
Can you solve this problem within 10 seconds?
Found it? Now move your mouse over the picture or click it, to find the refreshing simple answer.....
Remember however not to oversimplify things. Sometimes problems need the eye of the actuarial master to identify important details...
2. Visual Results
Second example is to visualize the outcome of your models instead of powerpoint bullet conclusions or explaining how complex your model really is.
A nice example is the online dollarbilltracking project "
Where's George?" from
Research on Complex Systems, that measures the flow of dollars within the U.S. (over 11 millions bills, 3109 counties).
About 17 million passengers travel each week across long distances. However, including all means of transportation, 80% of all traffic occurs across distances less than 50 km.
One picture says it all and 'hides' the complex algorithms used, to get stunning results.
On top of,
George collects relevant data about 'human travel' that could be used for developing models of the spread of infectious diseases.
Just take look at the video presentation of George called
Follow the Money to find out how to extract simple outcomes from complex models.
One of the simple results (by
Brockmann) of this project is that the probability P(r) of traveling a distance (r, in km) in a short period of time in days (max 14 days) can be
expressed as a power law, i.e.:
P(r)= r ^{1.6}
3. Listen better
Every (actuarial) project outcome fails if there's no well defined goal at first.
Main problem is often, that the client isn't really capable of defining his goal (or problem) very precise and we  actuaries  start 'helping' the client. In this 'helping' we are imposing our thoughts, beliefs and experiences onto others, by what we think 'is best' for the client. The outcome might often be an actuarial solution that fits the problem in our own actuarial head, but fails to meet the clients problem.
Main point is that we  as advisors  don't really listen well.
Of course that doesn't apply to you as an actuary personally, but it does apply to all other qualified actuaries, doesn't it?
Just to test if you're part of that small elite troop of 'well listening qualified actuaries' (WLQAs), just answer the next simple Client Problem:
Client: I'm confused about 'distances'. It turns out that measuring the distance between two points on earth is really complicated math, as the world is round and not flat.
But even in a 'flat world' I find measuring distance complicated. As an actuary, can you tell me:
What’s the shortest distance between two points in a flat world?
O.K. Now think for a moment.....
Have you got the answer to this complex client problem?
Now that you're ready with your answer, please click on the answer button to find out the one and only correct answer.
The answer is: the shortest distance between two points is zero
Hope you safely (without any mental damage) passed the above WLQAtest......
A Simple Application
A nice demonstration of actuarial simplicity is the well known 'compound interest
doubling rule' that states that an investment with compound interest rate R, doubles itself in N≈72/R years.
So it'll take (p.e.)
approximately N≈ 12 (=72/6) years to double your investment of $100 to $200 at an compound interest rate of 6% p.a.
While the precise equation of the doubling time is quite complex to handle, it's approximating equivalent, N≈72/R, is simple applicable and will do fine for small size compound interest rates.
It's our actuarial duty and challenge to develop simple rules of thumbs for board members we advice. We actuaries have to master the power of simplicity. Let's keep doing so!
Related links:

The Complexity of Simplicity

Where's George?: Wikipedia

The scaling laws of human travel (2006)