Intellectual Ore

I was heading to work on the 2/3 last Thursday when I saw a gentleman perusing Taleb’s Black Swawn.  Being that this is one of my favorite books, I was inclined to ask the gentleman’s opinion of it; as it happens, he was an actuary en route to a discussion about the book.  An actuary reading Taleb is something like a Christian reading the Quaran, so I knew right away that I was speaking to an extremely open-minded person.  He explained that in the course of his work at Standard and Poor’s, he’d seen the insurance industry shoot itself in the foot by systematically underpricing risk.  When disaster strikes, he explained, insurance companies lose a lot of money, but shortly after, premiums go up as disasters seem “more likely” in retrospect.  Faced with a glut of new premium money, the companies seek to expand the business they’ve written, and end up competing each other to a price point below the actuarially-derived zero-profit point, into loss.

When I explained that I was an engineering student, he contrasted his profession with mine, explaining that both, despite the proliferation of highfalutin models, require a pragmatic spirit capable of seeing beyond the limits of models.  It’s rare to meet someone so open-minded, especially over the age of 40; I was thoroughly impressed with this man’s intellectual accomplishment.