Society of Actuaries (SOA) PA Practice Exam 2025 – Comprehensive All-in-One Guide to Mastering Your Exam Success!

The chosen answer is correct because Generalized Linear Models (GLMs) do not inherently include mechanisms to automatically capture interactions between variables. In GLMs, interactions must be explicitly defined and included in the model formulation by the analyst. This can be a limitation because the analyst must have prior knowledge or intuition about which variables might interact and must invest additional effort in model specification.

In contrast, Decision Trees are designed to naturally account for interactions between variables as they split the data based on the values of the input features at each node. This allows them to capture different relationships within the data without requiring pre-specification of interactions.

Other statements highlight aspects of GLMs that are not disadvantages; for example, GLMs do offer interpretability and can capture certain linear relationships well. However, their lack of automatic interaction handling is a distinct disadvantage when compared to Decision Trees, particularly in situations where interactions play a significant role in the data's structure.