What The Office Teaches about Actuarial Modelling
“The Machine Knows” is a classic Office episode that teaches us about Actuarial modeling in the following clip:
There are many lessons embedded in this two minutes.
1) Be careful with model interpretation. Michael wanted to interpret the result literally; be warned, if you do this, you may get very wet.
2) Models are only guides. The Map is Not the Territory; the model is not reality. From the clip, it seems possible that the GPS system (aka the Map, aka the Model) was wrong and Michael was following it into disaster (like these individuals did in real life). Even if the GPS was correct, either way the clip illustrates that reality itself needs to be paid attention to, regardless of what you believe any model says.
2-alternate) Michael fell prey to the Reification Fallacy, one of the most prevalent and powerful modeling fallacies.
3) If you can’t understand a model, then be warned that disastrous results may follow. Sometimes, models erroneously embolden you. Always be humble when interpreting model results, and be open to contrary evidence. All models are wrong; some are useful.
4) Don’t be a passenger in a car driven by someone who takes his models literally. Unless you make your living in disaster recovery.
Tomorrow I’ll post on the analysis of risk, and how that could be applied to this video.