Actuarial Aspects of Alito's Confirmation Hearings
C.K. "Stan" Khury

This quarter, The Actuarial Review welcomes a column from Editor Emeritus Stan Khury. Khury is a principal of Bass & Khury, an independent actuarial consulting firm.

Once in a while the actuarial content of an event is just too good not to notice. The recent confirmation hearings of Judge Samuel Alito presented one of those. Judge Alito might as well have been an actuary defending his work. He was often asked about his views on various issues, including abortion, separation of powers, and civil liberties. In response he explained some of his relevant past decisions and, when there wasn't such a case, he explained how he would go about making his decision. The frustration among some of the questioners was palpable. They wanted to know the results Judge Alito would reach and Judge Alito insisted on answering by explaining the process he would use in arriving at his conclusions. This is precisely the point at which his testimony intersected with the actuarial paradigm.

The actuarial standards of practice are written in terms of process. For example, a key principle that underlies the reserving standards states that a loss reserve estimate is actuarially sound if it is based on appropriate methods and reasonable assumptions. This is a statement about process and says nothing about the result ( the estimate) that the actuary ultimately selects. The process produces the result. It is virtually impossible to talk about an actuarial result without talking about the process. A reserve estimate is what an appropriate method and a set of reasonable assumptions combine to produce at a specific point in time.

Beneath this broad statement is the complex set of considerations and judgments an actuary makes along the way to arrive at the estimate. Any biases (since we are dealing with the alleged biases of Judge Alito) that tend to skew the process generally lurk in this complex set of considerations and judgments.

Actuaries and judges... have different goals: actuaries are estimating future outcomes... while judges assess past events, a process that requires an objective examination of conduct that has already occurred.

The application of this standard to Judge Alito's situation is direct and requires little extension. Two capable and competent judges can marshal substantial arguments, and end up in direct opposition to one another, on any aspect of an issue before the court. Note in particular the numerous split decisions of the Supreme Court. In determining what law to apply, judges may or may not be influenced by their own agenda. If a decision of a lower court is biased, it can be reversed on appeal. A Supreme Court decision, for better or worse, is the law of the land. The judges who render the decision answer to nobody, only to their own conscience and principles [although they have to interpret within the framework of the constitution and previous cases].

Actuaries and judges, of course, have different goals: actuaries are estimating future outcomes, which necessarily require assumptions and judgments about events that have not yet happened; while judges assess past events, a process that requires an objective examination of conduct that has already occurred. Thus an outside observer cannot know the extent to which judges and actuaries, in reaching their decisions, are influenced, consciously or unconsciously, by their personal biases. Those who questioned Judge Alito also were concerned about biases or predispositions he may bring to the court and kept hammering away to find out what his inclinations were. Judge Alito skillfully avoided answering those questions in the form asked and systematically answered in terms of the process.

Having failed to elicit Judge Alito's predispositions on the issues, the questioners resorted to the use of statistics to suggest a trend of bias. One example illustrates the point. Judge Alito was asked why his decisions were "against the little guy" more than 80 percent of the time. The questioner carefully failed to point out that the third circuit court of appeals, the court on which Judge Alito served for the past fifteen years, overturned the lower court a little less than six percent of the time. In other words, the court of appeals affirmed the lower court rulings in the vast majority of the cases. And so, how much of Judge Alito's 80 percent is a function of the lower court doing a proper job in adjudicating cases, a function of the facts and the law being against the little guy in the first place, a function of Judge Alito's biases, or a function of pure happenstance, as cases are decided one at a time, is totally garbled and one cannot draw any conclusions from such statistics. And, therefore, this line of questioning also came up empty.

Judge Alito's supporters were very pleased with how this exercise developed. Judge Alito's detractors were quite dismayed at their inability to penetrate the steel egg. And, so, what are we to make of all this?

Given the way the hearing process played out, aside from Judge Alito's tendency to rule rather narrowly, which is widely acknowledged, we have little information about any biases he might harbor. And, therefore, the one remaining thing on which one can place any reliance is the personal and professional integrity of the nominee. And to that end there was a substantial stream of distinguished people who worked closely with Judge Alito for many years, both Republicans and Democrats, who testified strongly as to his decency, impartiality, thoroughness, integrity, standards of care, and lack of bias.

It seems to me that the client of a practicing actuary is in exactly the same position. Assuming the competence of a practicing actuary, the only thing on which the client ultimately has to rely is the personal and professional integrity of the actuary. Hence, the Actuarial Standards of Practice and the Code of Professional Conduct become ever more important in the way an actuary's work product and professional conduct are ultimately judged. And even then, there is an element of personal and professional integrity that transcends the Standards and the Code as written, and that is: each of us needs to view the Standards and the Code as the minimum we meet and that we should meet and exceed that minimum rather comfortably. And that is a good place in which to practice!