Fuzzy Set Theory
A quick overview of developing fuzzy sets methodologies in actuarial science, and the basic mathematics of fuzzy sets is provided.
Abstract
Traditional actuarial methodologies have been built upon probabilistic models. They are often driven by stringent regulation of the insurance business. Deregulation and global competition of the last two decades have opened the door for new methodologies, among them, being fuzzy methods. The defining property of fuzzy sets is that their elements possibly have partial membership (between 0 and 1), with degree of membership of zero indicating not belonging to the set considered, and degree of membership of one indicating certainty of membership. This article provides a quick overview of developing fuzzy sets methodologies in actuarial science, and the basic mathematics of fuzzy sets. Keywords: fuzzy set theory; insurance; risk classification; forecasting; taxes; fraud; approximate reasoning