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Against the Gods: The Remarkable Story of Risk (1996)
by Peter L. Bernstein
No current Talk conversations about this book.
Probability has always been my mental blindspot, but this is a pretty good introduction to risk management for a lay person. ( )
I disagree with so much of this book. Not because I think Bernstein's statements are wrong, but because their connection to risk, risk assessment, and risk management is so tenuous. Further, there is never any discussion of consequence. It is not enough to assess the likelihood of an event - the potential consequence is more important.
Against the Gods: The Remarkable Story of Risk discusses the history of Risk Management. The book goes through the early years of Probability and comes full circle to the present day. It talks about the development of Statistical Sampling and other various techniques used to quantify events.
The book is really interesting in how it discusses its subject. Peter L Bernstein has done a great deal of work in researching the history of Probability and the history of Statistics. It also goes into how people understood annuities and other methods of insurance.
Bernstein has done a great deal of thought on how the Ancient Greeks didn’t develop this sort of idea as well. They knew of many things but never made that leap to think of Risk Assessment or Probabilities. With the Ancient Greeks, the main problem was not only their number system, but it was also their belief in a capricious pantheon of deities. The author argues that if you don’t believe yourself to be a free agent with some control over your own fate, you wouldn’t go and try to change your own position in society. Finally, the Ancient Greeks didn’t really have a mindset of making practical applications for things. They were more purists than anything with that. The theoretical was more important than the practical for them.
So this paradigm continued throughout the so-called Dark Ages. As I said, a great deal of the shift in thinking occurred due to the spread of Hindu-Arabic Numerals and other Arabic ideas. It covers the development of the Double-Entry Bookkeeping System, and how people didn’t trust the Hindu-Arabic Numerals at first. Basically, the argument was that it was too easy to commit fraud. Once Movable Type became more available the numerals were accepted easily. This was also prompted by the rise of Banking and other businesses that made dozens of transactions per day.
By following the development of Probability Theory, we look at the lives of many mathematical luminaries of the Seventeenth Century and beyond. We certainly know the lives of some of these men and women, but most of them started popping up in the Seventeenth Century as I mentioned. All of them were known to Marin Mersenne, the French Priest that made some advancements in Acoustics and ran correspondence with people all over Europe. The other thing of note was the rise of Lloyd’s, the famed Insurance Company that I never really knew much about. With Merchant Shipping came the rise of Underwriters and other different services.
Once we get into the Eighteenth Century we meet up with some of the Bernoulli Family and the Prince of Mathematicians Carl Friedrich Gauss. The book states that Daniel Bernoulli was the first to ascribe a value to something that could not be counted. Bernoulli argued that motivations count toward the end result as well. To illustrate this, Bernoulli presents the Petersburg Paradox. The Paradox goes like this; Peter and Paul play a coin flip game. If tails come up the winnings you get are doubled, but if heads come up, you get the amount that you won. What would you pay to enter such a game? Bernoulli tells us that although the game can enable you to earn an infinite amount of money, a reasonable person would only pay about 20 Ducats. We can’t have risk without uncertainty, and in that vein, we meet Thomas Bayes and the Bayes Theorem. It discusses the ideas behind that and how it benefited the field. Then we meet with Gauss. He developed a lot of different things, among them is the Normal Distribution or Bell Curve.
Finally, once we reach the modern era it talks about the theories and ideas of Keynes, von Neumann, Knight, and Morgenstern. It talks about when the United States Government auctioned off its Wireless Zone rights and how different companies had to use Game Theory to figure out what to do, and the best way to outbid the other companies.
All in all, this book was pretty good. It was very interesting and enjoyable. I did not realize that it was over twenty years old as of this review on May 23, 2019. That isn’t really all that important though.
The book leaves a bit to be desired.
It's a general mathematical history of risk management, but most of the material is rudimentary. The material itself is probably just a basic statistics and finance course stripped of actual formulas. For people really into mathematical history and etymology this book might be more interesting than it was for me. The book starts with the adoption of arabic numerals goes through the basic history of probability and statistics before concluding with finance and economics (topics include game theory, behavioral finance, portfolio theory, derivatives and Knight/Keynes). It might be a good introduction for someone who's interested in the subject but has not had exposure to any of the topics. The only really surprising part of the book is behavioral finance was already starting to gain prominence in the 90s. The tone of the book reminds me of Worldly Philosophers, which was a book that I did not care too much for either. The book was published in 1998, so some of the data is probably stale as well. Recommend for someone without too much time but wants an introductory exposure to risk and finance. Would not recommend for anyone who has had formal education in finance or risk management.
For a similar but better book, I would recommend Drunkard's Walk instead. It's written in a more approachable style and the material is less dry.
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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A Business Week, New York Times Business, and USA Today Bestseller "Ambitious and readable . . . an engaging introduction to the oddsmakers, whom Bernstein regards as true humanists helping to release mankind from the choke holds of superstition and fatalism." --The New York Times "An extraordinarily entertaining and informative book." --The Wall Street Journal "A lively panoramic book . . . Against the Gods sets up an ambitious premise and then delivers on it." --Business Week "Deserves to be, and surely will be, widely read." --The Economist "[A] challenging book, one that may change forever the way people think about the world." --Worth "No one else could have written a book of such central importance with so much charm and excitement." --Robert Heilbroner author, The Worldly Philosophers "With his wonderful knowledge of the history and current manifestations of risk, Peter Bernstein brings us Against the Gods. Nothing like it will come out of the financial world this year or ever. I speak carefully: no one should miss it." --John Kenneth Galbraith Professor of Economics Emeritus, Harvard University In this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today. "An extremely readable history of risk." --Barron's "Fascinating . . . this challenging volume will help you understand the uncertainties that every investor must face." --Money "A singular achievement." --Times Literary Supplement "There's a growing market for savants who can render the recondite intelligibly-witness Stephen Jay Gould (natural history), Oliver Sacks (disease), Richard Dawkins (heredity), James Gleick (physics), Paul Krugman (economics)-and Bernstein would mingle well in their company." --The Australian
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