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Against the Gods: The Remarkable Story of…

Against the Gods: The Remarkable Story of Risk (1996)

by Peter L. Bernstein

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  ronchan | Nov 14, 2016 |
Excellent narrative of the history of human attempts to find some order in life and how this became applicable to financial markets. There are no revelations here but rather it shows that we are still nowhere near a solution for predicting any kind of future, financial or otherwise - if that is possible at all. It was very interesting to read in last chapters about derivative instruments, considering recent crisis and the fact the book was written in 1996. It's quite eerily how author describes potential misuse of derivatives, which is what has caused 2008 financial crisis. ( )
  everfresh1 | Jan 10, 2015 |

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein is the third book I've read in the book swaps I do with my fee only financial advisor. I never would have picked this up to read myself, but I'm much better informed on the topic of risk having read it. Berstein's book is primarily historical, somewhat biographical, and minimally technical in his comprehensive treatment of risk.

The sections and chapters progress historically from the earliest notion of numbers and risk quantification in ancient times to the present day--or at least 1996 when the book came out. The earlier chapters deal with historical developments in the mathematics of probability and statistical theories. The later chapters focus more on risk in modern financial markets. In the concluding chapter titled "Awaiting the Wildness" Bernstein writes:

"As we look ahead toward the new millennium, what are the prospects that we can ... hope to bring more risks under control and make progress at the same time? ... despite the many ingenious tools ... created to attack the puzzle, much remains unsolved. Discontinuities, irregularities, and volatilities seem to be proliferating rather than diminishing." (p.329)

Yes, it is a wild and risky world out there! I wonder what the author would say today as we're digging out of the recent implosion in our global financial system? Overall, I enjoyed the book, particularly the biographical sketches of the many intellectual luminaries who contributed to the body of knowledge on risk and probability. I particularly enjoyed the chapter on Prospect Theory which was a core part of Predictably Irrational, another book Brent loaned me. Recognizing the classical view of rationality was wrong and that human "logic" is not so logical leads to some fascinating conclusions about the human condition.

"Prospect Theory discovered behavior patterns that had never been recognized by proponents of rational decision-making. Kahneman and Tversky ascribe these patterns to two human shortcomings. First, emotion often destroys the self-control that is essential to rational decision-making. Second, people are often unable to understand fully what they are dealing with. They experience what psychologists call cognitive difficulties." (p. 271)

Prospect Theory discovered asymmetry in human decisions involving gains vs. decisions involving losses. People are more risk averse about winning than losing, i.e. we take more risks to avoid loss than to achieve gains. Adding this discovery to the observation that loss remaining unresolved, such as the loss of a loved one, can provoke intense, irrational, and abiding risk-aversion is a profound insight that explains a lot of human behavior. It also got me thinking more deeply about why I make some of the decisions I do. In addition to the insights on human behavior, this book also confirmed and solidified my thoughts on money management and investing. ( )
1 vote delenburg | Jan 3, 2015 |
Excellent overview of probability and the development of financial markets. I take issue with a few points- prospect theory does not obviate the benefits of statistical analysis, for example- but overall a fantastic read.
  BrianFannin | May 31, 2013 |
#6: Risk and its history.
  SoliDeoGloria | Mar 31, 2013 |
Showing 1-5 of 16 (next | show all)
Against the Gods sets up an ambitious premise and then delivers on it. This is a lively, panoramic book that includes tales of everyone from Omar Khayyam to Florence Nightingale to Daniel Ellsberg. Khayyam, the poet, was also a mathematician. Nightingale, the nurse, once offered to fund a chair in applied statistics at Oxford University. And Ellsberg, the Defense Dept. analyst who leaked the Pentagon Papers, specialized in the behavioral psychology of risk-taking.
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Amazon.com Amazon.com Review (ISBN 0471295639, Paperback)

With the stock market breaking records almost daily, leaving longtime market analysts shaking their heads and revising their forecasts, a study of the concept of risk seems quite timely. Peter Bernstein has written a comprehensive history of man's efforts to understand risk and probability, beginning with early gamblers in ancient Greece, continuing through the 17th-century French mathematicians Pascal and Fermat and up to modern chaos theory. Along the way he demonstrates that understanding risk underlies everything from game theory to bridge-building to winemaking.

(retrieved from Amazon Thu, 12 Mar 2015 18:05:20 -0400)

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People constantly make choices, arrive at decisions, and take risks. Savers buy stocks, doctors perform operations, poker players figure the odds, and business managers launch new products. Without the instruments of risk management, such decisions would be impossible, because no one could figure out the likelihood of success. Yet the idea that we need not listen to soothsayers for advice is less than five hundred years old. This book blends biography with history and science to show how famous thinkers like Pascal, Bernoulli, Bayes, Keynes, Markowitz, Arrow and von Neumann paved the way from superstition to the supercomputer. But Bernstein tells of others as well, less known but equally important in developing the theory and practice of risk management. The book also explains significant concepts including probability, uncertainty, the distinction between chance and skill, the interactions between gambling and investing, and rational versus irrational decision-making.--From publisher description.… (more)

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