The NBA playoffs and What Actuaries Do

What if we applied actuarial techniques to guess what will happen in the series between the Atlanta Hawks and the Chicago Bulls?  As of 5/11, there are three possibilities:

  • Chicago wins Game 6 in Atlanta
  • Atlanta wins Game 6 in Atlanta; Chicago wins Game 7 in Chicago
  • Atlanta wins Game 6 in Atlanta; Atlanta wins Game 7 in Chicago

To estimate the possibilities of each of these, a number of factors could be considered important:

  • Regular Season record in aggregate
  • Regular Season record broken down by home and away
  • Regular Season records for both teams
  • This Playoff Series record in aggregate
  • This Playoff Series record broken down by home and away
  • This Playoff Series record for both teams
  • Past Playoff Series’ where the Game 6 home team was down 2-3

As you can see, there are a lot of factors…and any estimate would rely on putting more or less weight on each of the factors above.  If the outcome of sporting events was easy to predict, no one would watch it.  Similarly, Actuaries, when performing reserving analyses, weigh dozens of factors in selecting required reserves or rating programs. Some examples:

  • Information and projections from company management
  • Company’s past experience for this line
  • Company’s past experience for related lines
  • Industry’s past experience for this line
  • Industry’s past experience for related lines
  • Changing judicial/social environment
  • Changing mix of business
  • Data collected on territory, statewide, regional, or countrywide basis

The skilled, experienced Actuary is able to accurately weigh all the different factors when making selections.

So, to what do you attach weight?  Let us know your thoughts.

Michael Solomon, FCAS, MAAA, is a consulting actuary at Merlinos & Associates.