Positive theory and actuarial practice

In recent months, the actuarial profession has seen a debate about how financial theory

ought to be developed and applied. This has been essentially a normative, philosophical

exercise, imposing a view of how actuarial practice should progress. In this article we

outline an alternative approach to understanding and explaining actuarial practice. The

approach is positive rather than normative: it observes actuarial practice and the theories

on which it is based and seeks to explain why these practices and theories prevail, rather

than offering prescriptions for theories which should prevail.