Yes, I know, I have been incredibly slack with this series, and even my die-hard reader has lost what little interest he feigned initially. But I am nothing if not lazy. And persistent. So I’ll give you all a quick recap, before dazzling you with Part 3 of this interminably feeble attempt at esoteric intellectualism.
We learned in the previous two posts that expected values are a kind of average outcome, and, if we act rationally, we should be indifferent between two sets of outcomes with the same expected value. We also learned that the risk component of every insurance premium is calculated by considering three things:
- Characteristics of the life insured that affect the risk, but which they can’t control;
- Characteristics that affect the risk, but which they can control; and
- Random risks which no one can predict, or control.
Or, if you’re into catch-phrases: people are things, people do things, and shït happens. Keep that in mind, should you choose to ignore all common sense and read on.
All in all, Bob has had a pretty good buck’s party. He didn’t get kicked out of the races, he managed to keep his dinner down, and when the stripper was looking for someone to incorporate into the show, he picked someone else. And now, at 2am, as he’s meandering through Kings Cross and past the throngs of tipsy, giggling, scantily-clad ladies, there’s only one thing on Bob’s mind.
Kebab. Must get kebab.
So into the kebab shop he goes. “Lamb, please. And hommus. And lettuce, tomato, taboulli, cheese, and BBQ sauce. But no onions, I might still pick up”. Suddenly, Bob is struck by an idea. An idea so brilliant, so monumentally profound, that he immediately resolves to dedicate his life to its fruition. He turns to the kebab shop owner, and with a glint in his eye, and goosebumps on his soul, he says, “Throw some calamari in there, too.”
He exits the kebab shop to rapturous applause and the awe-struck admiration of the gathering crowd. And then, from out of nowhere, some drunken moron bumps into him, and sends his epiphanous creation crashing to the ground.
As Bob stares down at the battered remains of his life’s work, but mostly the remains of the battered calamari, his supreme joy quickly evaporates. Much faster, I might add, than the BBQ sauce on the pavement, which would also evaporate, if given enough time.
So what does Bob do? Why, he does what any Aussie bloke would do when some drunken moron bumps into him. He briefly exchanges pleasantries (so that I can refer to the drunken moron as Wayne instead of “drunken moron”) and then he gives Wayne a shove. Wayne protests – it was an accident! Bob doesn’t care if it was an accident, Wayne ruined his fücking kebab. There’s a bit of yelling, and a bit more shoving, the poor kebab gets stepped on a few times, people start yelling “Fight!”, and before either of them realise what’s happening, Bob’s drunken fist is flying towards Wayne’s drunken face.
What happens next is the subject of my grand, actuarial idea.
So what does happen next?
Well as we all know, lots of things could happen next. Assuming Bob’s punch finds its mark, Wayne could now find himself in possession of anything from a bit of a headache, to a split lip, a black eye, or a broken jaw. Then again, maybe Bob’s only street fighting was as Honda on his SNES, and he only manages to hit Wayne with 100 quickly-delivered but surprisingly-gentle slaps on the arm (which, by the way, could be countered with a well-timed hadoken). Maybe he’s so drunk as to miss Wayne completely, and they end up laughing about it. Or maybe he connects, and Wayne stumbles backwards, hits the back of his head on the pavement, suffers a cerebral haemorrhage, and dies (yes, it happens).
So we’re agreed – lots of things could happen. But what will determine what actually happens? Under what circumstances would Wayne end up with a fat lip, and what might result in his death?
Answering that question is if course very difficult. No one can predict the future with absolute certainty, except maybe Dumbledore, and he’s dead. But as with all things actuarial, we can narrow the range of outcomes and assess their relative probabilities by looking at the risk factors. So let’s assume for a moment that Bob’s punch does find its mark. If our resident actuary, Joanne, could use her Casio FX82TL to freeze time at the moment of impact, how would she go about guessing the outcome?
She’d probably start with Bob, as the most obvious risk factor is Bob’s strength. And she’d quickly discover that Bob’s strength is rather impressive. He clearly lifts, bro – a lot. While copping a feel of his bicep, she also notices a tattoo that says “UFC 112 – HEAVYWEIGHT CHAMPION”. Hmm.
Turning her attention to Wayne, she notices that his physique is, shall we say, less impressive. In fact, it appears to be geared more towards punching out P&Ls than his fellow citizens (not that there’s anything wrong with that). His arms are, however, apparently strong enough to hold himself up on his crutches.
Having assessed the two combatants, Joanne then begins to examine their surroundings. And she discovers that, while Bob and Wayne are currently standing on a concrete pavement, they are only a few metres away from a large area of grass. Fred Nile is also stumbling out of a nearby bath house, but that’s by the by.
With her analysis now complete, Joanne realises that things aren’t looking too good for Wayne, and it seems pretty unlikely that he’ll hobble away with nothing more than a fat lip. Meanwhile, their relative physiques, the fact that Wayne is on crutches and they’re standing on concrete, means that he now has a very good chance of sustaining a serious injury – possibly life-threatening, depending on how he falls. At the very least, it’s clear that the range of outcomes would be very different if the two physiques were reversed, and they were in a jumping castle. Of course, we’d then be left with the problem of deteriorating jumping castle entry standards, but that’s an issue for another time. (Crutches and kebabs in a jumping castle. Honestly!)
As Joanne considers the situation a little further, she realises that, much like insurance, the range of outcomes really comes down to this: people are things, people do things, and shït happens.
And then it hits her: “Wow! That sounds a lot like the pithy phrase that Tim used at the beginning of this post. Also, time is still frozen, so Ima go steal a Chanel handbag.”
And she lived happily ever after. Well, at least until she turned up to work on Monday. She is an actuary, after all.