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IAI Actuarial Core Principles · Actuarial Statistics · Purpose and function of data analysis

An actuary at a Chennai health insurer is reviewing a claims dataset. Which of the following best describes a reason to carry out exploratory data analysis before fitting a model?

Exploratory data analysis is carried out to reveal errors, patterns, skewness and outliers in the data, which then guide the choice of model. It does not prove unbiasedness, substitute for formal tests, guarantee representativeness or remove the need to document data limitations.

  1. ATo reveal data errors, patterns and outliers that guide the choice of modelCorrect
  2. BTo prove that the final model's parameters are unbiased
  3. CTo replace the need for any hypothesis testing later
  4. DTo guarantee that the sample is representative of the population
  5. To remove the need for documenting data limitations

Explanation

Exploratory analysis uses summaries and plots to spot errors, skewness, outliers and relationships, and so informs model choice. It cannot prove unbiasedness, replace formal testing, or ensure representativeness. Limitations still need documenting.

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