Februarys edition of The Actuary featured my book review of Misbehaving: The Making of Behavioural Economics by Richard Thaler (bit.ly/1PKsp6A).
My favourite conundrum, which I posed to readers, was: "Guess a number from 0 to 100 with the goal of making your guess as close as possible to two-thirds of the average guess of all those participating in the contest."
I am pleased to say we had a number of respondents. Now, if everyone had responded rationally, they would all have answered zero and won the prize. But of course not everyone answers rationally. So the right answer to this particular conundrum is usually to choose a number pretty low that accommodates a few irrational (illogical or normal) people.
Well, in this experiment, it seems there were quite a few rational respondents, answering zero. But the average was 4.6 - a lot less than answers of around 20 from a typical cross-sections of 'humans'. So two-thirds of the average is 3.1. It means that our canny winner is Ian Rogers, who was closest with a guess of 1. No prizes for our winner I'm afraid, other than the recognition of being the canniest of them all.
So what does this small experiment tell us? Well, it highlights how people do not always behave as rationally as we might expect, and this is worth bearing in mind when we're designing insurance or pension products. It also shows that actuaries are not immune to irrational behaviour, though much better than the population as a whole!
Peter Tompkins
18 February
