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Against the Gods: The Remarkable Story of Risk

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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-centur 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.


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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-centur 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.

30 review for Against the Gods: The Remarkable Story of Risk

  1. 5 out of 5

    Tim O'Hearn

    Books published at the end of the 20th century have a certain purity to them. Free from the banalities of the information age yet aware of the implications of the technological revolution, the best among them are wonderfully endearing. Against the Gods is a classic, a 1996 tour de force by the late Peter Bernstein. This book is about how our perception of risk, especially with respect to decisions with financial outcomes, advanced (rather slowly) from ancient times to the present. A generation af Books published at the end of the 20th century have a certain purity to them. Free from the banalities of the information age yet aware of the implications of the technological revolution, the best among them are wonderfully endearing. Against the Gods is a classic, a 1996 tour de force by the late Peter Bernstein. This book is about how our perception of risk, especially with respect to decisions with financial outcomes, advanced (rather slowly) from ancient times to the present. A generation after publication, Bernstein's charm can never be replicated, even as swaths of information are reprinted (Fortune's Formula) or selectively expanded into standalone works (Thinking, Fast and Slow). To me, this is the original compilation--the progenitor, if you will--of the discoveries leading to our modern understanding of numbers, probability and, by extension, more concrete applications like pricing theories, risk management, and behavioral finance. The book being published in 1996 is significant because the author does adorable things like use quotes when he introduces the term "data mining" but also understands the future well enough to briefly introduce concepts such as genetic algorithms. If this book was written five years later, there would have had to have been so much additional explanation--so many attempts to fit square pegs into round holes--that it would have taken away from the poignancy of the subject matter. Having to talk about the dot-com bubble? Eh. Having to mention that the Black-Scholes guys formed LTCM and blew up? Impossible to avoid but since this would have been my fifth time reading about it, eh. 1996 was a phenomenal stopping point and this work will endure long after my own life ends. The implications of this book go far beyond the realm of finance. Frankly, there is very little finance (as far as dry financial topics go) until the more structured academic studies are brought in near the end. Throughout, the reader can grasp the applications of discoveries to "finance" (from personal- to high-) but, in totality, this is much more about science, discovery, history, and human nature. And for these reasons, it can be counted as among the most accessible, informative, and important books of the 20th century.

  2. 5 out of 5

    Supratim

    I had started the book with very high expectations but unfortunately, I am disappointed for the most part. I have to say that the title of the book is not totally compatible with the content. “Against The Gods” gives the impression that the book would illustrate how human beings overcame their superstitions and prejudices, and opposed blind faith. The book talks about how the development of mathematics and statistics provided human beings with ways of quantifying risks but it does not talk about I had started the book with very high expectations but unfortunately, I am disappointed for the most part. I have to say that the title of the book is not totally compatible with the content. “Against The Gods” gives the impression that the book would illustrate how human beings overcame their superstitions and prejudices, and opposed blind faith. The book talks about how the development of mathematics and statistics provided human beings with ways of quantifying risks but it does not talk about conflicts between science and orthodoxy. The book mentions the two events which ultimately led to the development of mathematics in the West. One is the introduction of the Hindu number system to the West by the Arabs and other is the Renaissance in Europe which paved the way for scientific thinking. Then we are introduced to various mathematicians, philosophers, economists who developed various theories on probability, uncertainty etc. The author mostly discusses how these theories had a profound impact on business and sectors like finance, insurance and the stock market. Some of the anecdotes were really interesting but since a lot many of these people and their theories have been presented, at times I found it difficult to remember who had proposed what. I liked certain anecdotes especially those which talked about how the theory of probability was developed based on games of chance, certain fun mathematics facts, eccentricity of certain people, use of financial instruments in the olden days. As a person who loved Algebra during his school days and still loves it, I liked the riddle regarding the age of Diophantus. Bernstein has also talked about psychological experiments conducted to gauge human decision making and the theories thus developed. Towards the end, we also learn about risk hedging instruments such as derivatives – futures and options. No doubt, Peter Bernstein has done extensive research for this book. Writing a book like this is by no means an easy task. I do appreciate how complex it is, but I did feel it could have been much better. So many theories were discussed but it was not clear exactly how they were applied. This book is not for everybody. Only those people who have some idea or interest in the stock market and historical trivia might be interested in it. There might be other books on the same theme but which are far better.

  3. 4 out of 5

    Michael Quinn

    Unfortunately, Bernstein just isn't a very strong writer. This is visible from the very beginning in his word choice and his many slips into generalization. He is very prone to hyperbole and "dressing up" relatively meaningless statements with strained poetic language. For readers, it can often be groan-inducing. Take Bernstein's introduction, for example: "The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more Unfortunately, Bernstein just isn't a very strong writer. This is visible from the very beginning in his word choice and his many slips into generalization. He is very prone to hyperbole and "dressing up" relatively meaningless statements with strained poetic language. For readers, it can often be groan-inducing. Take Bernstein's introduction, for example: "The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature. Until human beings discovered a way across that boundary, the future was a mirror of the past or the murky domain of the oracles and soothsayers who held a monopoly over knowledge of anticipated events." There are obvious ways of simplifying that statement: understanding risk allowed men and women to make projections of the future instead of relying on superstitious practices. Everything else in that paragraph is essentially junk. Bernstein continues in a similarly hyperbolic tone: "This book tells the story of a group of thinkers whose remarkable vision revealed how to put the future at the service of the present. By showing the world how to understand risk, measure it, and weigh its consequences, they converted risk-taking into one of the prime catalysts that drives modern Western society. Like Prometheus, they defied the gods and probed the darkness in search of the light that converted the future from an enemy into an opportunity.The transformation in attitudes towards risk management unleashed by their achievements has channeled the human passion for games and wagering into economic growth, improved quality of life, and technological progress." Bernstein's weak word choice and puffed up sentences become reflected on a much larger level in the book: he ends up spending very little time defining and discussing modern risk management. There is some approach to diversification as it applies to portfolio theory in finance, and there is a short discussion of options, but both subjects are tucked into the last chapters of the book. Especially with the final discussion of behavioral finance, which only serves as a bit of criticism of Markowitz, it becomes obvious that Bernstein is very uncomfortable discussing risk in any other format. The book isn't a complete disaster. It has some interesting stories of early mathematicians, and the lack of focus on a primary thesis is common in most books on social sciences/ history of ideas. People interested in finance or mathematics in general will likely be entertained. But this is ultimately a very small achievement for a book that claims to tackle so much more.

  4. 4 out of 5

    Craig

    This was a pretty good book, and it made a valiant attempt to thread the needle between being a book for math/ stats geeks and normal humans, but I am not sure it made it. I suspect the non-geeks would give up before making it through, and the geeks would make it through, but be disappointed by the lack of depth. As one of the geeks, I did enjoy it. It provided great back story on the development of statistics and the people that did the work. But I found myself wanting more depth. It was a clas This was a pretty good book, and it made a valiant attempt to thread the needle between being a book for math/ stats geeks and normal humans, but I am not sure it made it. I suspect the non-geeks would give up before making it through, and the geeks would make it through, but be disappointed by the lack of depth. As one of the geeks, I did enjoy it. It provided great back story on the development of statistics and the people that did the work. But I found myself wanting more depth. It was a classic example of covering too much ground, but none of it well enough. But I am glad I read it.

  5. 4 out of 5

    Joseph Devon

    Thoroughly enjoyed this. It examines the study and the notion of risk throughout...well throughout forever. A lot of the reviews make this out to be chock full of math, but speaking as a very non-math person I found it perfectly accessible. The author has a nice way of mixing background color and the personalities of the various people he discusses in with the overall examination of risk. I enjoyed thinking along with notions like why the number zero didn't exist until society had moved forward Thoroughly enjoyed this. It examines the study and the notion of risk throughout...well throughout forever. A lot of the reviews make this out to be chock full of math, but speaking as a very non-math person I found it perfectly accessible. The author has a nice way of mixing background color and the personalities of the various people he discusses in with the overall examination of risk. I enjoyed thinking along with notions like why the number zero didn't exist until society had moved forward to a certain point; or why almost every work of ancient Greek storytelling has some mention of dice games in it but at no point did anyone in ancient Greece ever seem to stop and calculate the odds of these games. Interesting stuff told with patient pleasantness.

  6. 4 out of 5

    Lobstergirl

    Disappointing; Bernstein is not a great writer and it was not really what I was expecting. Most of the book covers the time period before the 20th century and concerns mathematicians' and others' discoveries about probability. My interest in risk is in the areas of insurance - actuarial science - and corporate risk assessments/risk management. The only example of actuarial science Bernstein used was from the 18 century. I began to get slightly interested when he brought up Procter & Gamble and G Disappointing; Bernstein is not a great writer and it was not really what I was expecting. Most of the book covers the time period before the 20th century and concerns mathematicians' and others' discoveries about probability. My interest in risk is in the areas of insurance - actuarial science - and corporate risk assessments/risk management. The only example of actuarial science Bernstein used was from the 18 century. I began to get slightly interested when he brought up Procter & Gamble and Gibson's Greetings as examples of companies which had used derivatives not to properly hedge their risks but to amplify them, but that only lasted a few pages and then the book was over.

  7. 4 out of 5

    Siby

    Risk is inherent to any activity and uncertainty is all prevalent. Today, we have comlpex mathematical and statistical models to help us quantify and assess risk, but this was not always the case. This book tells the story of how modern Risk Management evolved with contribution from eminent scientists, statisticians, mathematicians and later, economists. What I really liked about this book is the fact that I was able to place the various names like Bernoulli, Pascal, Fermat, Fibonacci, Da Vinci, Risk is inherent to any activity and uncertainty is all prevalent. Today, we have comlpex mathematical and statistical models to help us quantify and assess risk, but this was not always the case. This book tells the story of how modern Risk Management evolved with contribution from eminent scientists, statisticians, mathematicians and later, economists. What I really liked about this book is the fact that I was able to place the various names like Bernoulli, Pascal, Fermat, Fibonacci, Da Vinci, Euler, Leibniz, de Moivre and many others in the chronological order of scientific development and the glimpses into their work and lives. We all know these names and generally associate them with one or the other mathematical/scientific development, but this book helped me realize the vast scope of their work and the extent of their brilliance. Also, Bernstien walks us through the the various milestones in mathematical history, like the adoption of the Hindu-Arabic numbering system, the impact of Zero; the significance of which most of us are still not able to understand, the development of statistics; average, mean, median, standard deviation, regression, correlation etc and how one led to the other over a course of decades (We study them all in one chapter today), how statistics led to the development of probability theorem and then to the study of human nature pertaining to choices and decision making, which is the crux of risk management today! The initial half of the book reads like the history of statistics and probability theory and would be extremely interesting to most of us who have some background in mathematics. The latter half of the book focuses more on human behaviour, philosophy behind choice and decision making and its measurement using the mathematical and probabilistic models and modern risk management, particularly in the insurance industry and stock trading.

  8. 5 out of 5

    Jessica

    I will readily admit that part of my dissatisfaction with this book comes from it being so different than what I thought it was going to be; that is, a story of risk management throughout history. Although, to be fair, I got that idea from the subtitle of the book, so it's not that far-fetched. No, instead this is a book the first two-thirds of which are a history of probability and forecasting, which, though related to risk, are not the same thing as risk, as evidenced by the author awkwardly sh I will readily admit that part of my dissatisfaction with this book comes from it being so different than what I thought it was going to be; that is, a story of risk management throughout history. Although, to be fair, I got that idea from the subtitle of the book, so it's not that far-fetched. No, instead this is a book the first two-thirds of which are a history of probability and forecasting, which, though related to risk, are not the same thing as risk, as evidenced by the author awkwardly shoving in references to risk throughout as if to pretend that the book was really about risk. Once we finally get through this whole long history and actually enter into a discussion of risk management, it is very narrowly defined as risk management related to finances and more specifically to investment. (Not surprising, given the author's credentials, but still disappointing when I thought the scope of the book would be broader.) Putting aside all that, this could still be a good book if Bernstein had had a better editor. (Which I feel is my critique of many books based on my own bias as an editor... but it's still true.) Besides his writing generally being more verbose and circuitous than necessary, with tangents that were clearly put in just because he came across an interesting story in his research, there were some glaring errors throughout, such as a person whose birth and death years are given as 50 years apart who is then said to have lived to be 80, and an individual's name spelled two different ways in two consecutive paragraphs, just to name a few. Anything that blatant automatically drops a book in my estimation. Being a stats nerd I was engaged enough with the whole history of probability not to abandon it early on, but I really can't think of a reason I would recommend this book to anyone.

  9. 4 out of 5

    Cyrin Cyriac

    Against the Gods is a perfect title for this book. It was thought during the Roman era only Gods could predict out comes however, with the development of probability theory even mortals are starting to predict future events. This book is packed with information from the origin of money to the origin of probability. Bernsteine has a very unique way of conveying information that not many other authors do, he talks about the discovery as much as he talks about the discoverer for example, on the top Against the Gods is a perfect title for this book. It was thought during the Roman era only Gods could predict out comes however, with the development of probability theory even mortals are starting to predict future events. This book is packed with information from the origin of money to the origin of probability. Bernsteine has a very unique way of conveying information that not many other authors do, he talks about the discovery as much as he talks about the discoverer for example, on the topic of standard distribution of a bell curve he doesn’t just say what it does, he talks about how it came to be discovered by a French mathematician De Moivre who was a close friend of Isaac Newton, well and truly delving deep into the topic. The audience is not left scratching their heads as a strong foundation is built which Bernstein builds on.

  10. 4 out of 5

    Vincent Li

    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 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.

  11. 5 out of 5

    Sandeep

    My physics teacher in high school loved to say - "Before you use any formula, you should know when the formula won't be applicable". In statistics, we might be tempted to use specific formulas without thinking about the implicit assumptions. The consequences can be disastrous. I like how the concept of quantifying risk has been dealt with in this book. You are given the historical context of how thought leaders in this field incrementally added to the work done earlier. The context helps us unde My physics teacher in high school loved to say - "Before you use any formula, you should know when the formula won't be applicable". In statistics, we might be tempted to use specific formulas without thinking about the implicit assumptions. The consequences can be disastrous. I like how the concept of quantifying risk has been dealt with in this book. You are given the historical context of how thought leaders in this field incrementally added to the work done earlier. The context helps us understand what was problem being solved, and how the thinking about the subject evolved. There are also brief episodes about the personalities of the people involved - with their philosophical and sometimes theological leanings. I found the discussion thought provoking and interesting.

  12. 4 out of 5

    Todd Martin

    You know the phrase “you can’t judge a book by its cover”? Well … who ever came up with that one never read Against the Gods: The Remarkable Story of Risk, because this book features a thrilling, storm-tossed boat on a raging sea … and the text features a thrilling, storm-tossed story about ……… !!! Hold on, my heart is absolutely pounding. {sits down, head between knees breathing into a paper bag} Ok … here we go … it’s about the mathematicians who developed the mathematical probability theories in You know the phrase “you can’t judge a book by its cover”? Well … who ever came up with that one never read Against the Gods: The Remarkable Story of Risk, because this book features a thrilling, storm-tossed boat on a raging sea … and the text features a thrilling, storm-tossed story about ……… !!! Hold on, my heart is absolutely pounding. {sits down, head between knees breathing into a paper bag} Ok … here we go … it’s about the mathematicians who developed the mathematical probability theories in use today to manage risk. I know … right!?!? First there’s: Pascal, Fermat, Fibonacci, Cardano, Halley, Bernoulli and Gauss. Then there’s: regression to the mean, variance and the normal distribution. All leading to up to a system of derivatives and other risk management contracts that make the global financial system the incredibly safe and stable institution that exists today (except for that little blip known as the global financial crisis of 2007-2008). To be serious for a minute – risk management is incredibly important. It’s why the insurance industry exists and why investors hold diversified portfolios. But it’s pretty dry stuff and Bernstein’s prose doesn’t exactly leap off the page.

  13. 5 out of 5

    Josh Friedlander

    I once read that a reason Christianity overcame paganism was that ancient Romans practiced haruspicy, and so the Christians had the advantage of basing their tactics on literally anything less insane. (Plus, "There shall not be found among you any one that...useth divination, or an observer of times, or an enchanter...or a consulter with familiar spirits" - Deuteronomy 18:10-11) It's not crazy. Bernstein, an economic historian and fund manager, begins this enjoyable history of risk with the anci I once read that a reason Christianity overcame paganism was that ancient Romans practiced haruspicy, and so the Christians had the advantage of basing their tactics on literally anything less insane. (Plus, "There shall not be found among you any one that...useth divination, or an observer of times, or an enchanter...or a consulter with familiar spirits" - Deuteronomy 18:10-11) It's not crazy. Bernstein, an economic historian and fund manager, begins this enjoyable history of risk with the ancient view of fate as decreed by the gods, moving to monotheism and then rapidly into the 16th century. He outlines the development of probability and statistics, starting with games of chance and gradually moving onto theories of expected utility. After the Great Depression Keynes criticised the idea of markets as completely rational, von Neumann developed Game Theory, and Twersky and Kahneman developed their theories of bounded rationality. Now we have neural networks, which give their own kind of predictions, but still grounded in learning from the past about the future. Ultimately uncertainty will always be a part of life: we can model it and try to mitigate it, but but we will still always feel a little precarious.

  14. 5 out of 5

    Jason ("jcreed")

    A puerile abuse of mathematics, statistics, biography, and history, badly paced and full of pointless and likely apocryphal anecdotes. Religious awe for Gaussian distributions appearing in nature makes me wonder if the author has ever heard of the fucking central limit theorem. Something like a version of "how to win friends and influence people" for economists or day traders or something, except it won't even make you feel good about humanity. A puerile abuse of mathematics, statistics, biography, and history, badly paced and full of pointless and likely apocryphal anecdotes. Religious awe for Gaussian distributions appearing in nature makes me wonder if the author has ever heard of the fucking central limit theorem. Something like a version of "how to win friends and influence people" for economists or day traders or something, except it won't even make you feel good about humanity.

  15. 5 out of 5

    Varapanyo Bhikkhu

    M Jones: Peter Bernstein claims that "the serious study of risk began during the Renaissance, when people broke loose from the constraints of the past and subjected long-held beliefs to open challenge." He then immediately undermines confidence in his judgment when he claims that the Renaissance was "in full flower" in 1654. Some would claim that the Renaissance had ended roughly 160 years before 1654, when Botticelli, at Savonarola's urging tossed his paintings on the bonfire of the vanities. Be M Jones: Peter Bernstein claims that "the serious study of risk began during the Renaissance, when people broke loose from the constraints of the past and subjected long-held beliefs to open challenge." He then immediately undermines confidence in his judgment when he claims that the Renaissance was "in full flower" in 1654. Some would claim that the Renaissance had ended roughly 160 years before 1654, when Botticelli, at Savonarola's urging tossed his paintings on the bonfire of the vanities. Before long, it becomes clear that Bernstein views the issue of risk through the lens of Whig theory, in particular the Whig view of economic history, as when he claims that "the Renaissance and the Protestant Reformation would set the scene for the mastery of risk as mysticism yielded to science and logic." But magic, not science, was "in full flower" during the Renaissance. Bernstein turns mastering risk into a promethean project. "Like Prometheus, they defied the gods and probed the darkness in search of the light that converted the future from an enemy into an opportunity,"  which "weakened the dominance of the Catholic Church." After lurching from one whiggish cliche, e.g., By eliminating the confessional, [the Reformation] warned people that henceforth they would have to walk on their own two feet and would have to take responsibility for the consequences of their decisions. to another, e.g., The concepts of thrift and abstinence that characterized the Protestant ethic evidenced the growing importance of the future relative to the present. Bernstein finally gets it right when he claims that "the inevitable result was capitalism." Unfortunately, he gets it wrong when he describes capitalism as "the epitome of risk-taking." Capitalism is state-sponsored usury, and, as such, it is not the epitome but, rather, the antithesis of risk taking. Those who possess wealth want to enjoy and increase their wealth without incurring any risk of losing it. The simplest way to increase wealth without incurring risk is to lend it out at usury because the borrower, by the terms of the loan, agrees to assume the entire burden of risk. He must pay back every penny that he borrowed, plus interest, whether his business venture succeeds or not. The Church considered this an unfair allotment of risk and condemned it as such. The Catholic Church circumscribed the ability of the wealthy to eliminate risk by condemning usury, which placed the entire burden of risk on the borrower, as sinful.

  16. 5 out of 5

    Mike

    For someone who avoids topics like risk and finance, this was a well-written and relatively clear introduction. The history and development of probability and statistics wasn't handled as well as in some other popular books I've read about the history of mathematics (most notably Dunham's Journey through Genius: The Great Theorems of Mathematics and Hawking's God Created The Integers), and had a couple of mistakes, but it was fundamentally solid. Where it gets interesting is when it goes beyond G For someone who avoids topics like risk and finance, this was a well-written and relatively clear introduction. The history and development of probability and statistics wasn't handled as well as in some other popular books I've read about the history of mathematics (most notably Dunham's Journey through Genius: The Great Theorems of Mathematics and Hawking's God Created The Integers), and had a couple of mistakes, but it was fundamentally solid. Where it gets interesting is when it goes beyond Gauss. The world of economics isn't the world of rational actors; it's a world of people who are hungry to make a killing and afraid to lose their shirts. When I was in grad school in English Lit, I said "If I wanted to make serious money, I'd get a PhD in psych, hire a bunch of psychologists, and start an investment firm." It turns out that's what happened--or at least, I wasn't the only one with the idea. (I don't know if fortunes were made.) The history of the integration of irrational behavior was fascinating; the discussion of derivatives and their abuse (together with a hand-waving explanation of Black-Scholes, which was enough for me) was, well, enlightening. Derivatives have a long, long history, and were invented as a means to hedge against risk; but all too often, they're used to increase leverage. And when you're using derivatives to increase leverage, and it backfires, all hell breaks loose. With that in mind, I only wish this book had been written after the crash of 2008, rather than after the crash of 1994. The final (short) chapter feels oddly dated. Finance has indeed gotten mathematical and computational, as Bernstein expects. I don't know if quants are currently interested in chaos theory, and I do know that neural networks now are a lot different than neural networks in 1996. But it's hard to fault the author for writing in the 90s, particularly when he died in 2009. Definitely worth reading as an introduction to modern risk management.

  17. 4 out of 5

    Casey

    An okay book, combining a mathematical history of probability theory with its use in risk management within modern day financial markets. The author, Peter Bernstein, a prolific financial historian, attempts to present a detailed history of the mathematics of probability and then apply that history to modern finance. In the first he was successful, but an overly detailed attempt to prove his theory of the blissfully ignorant professional investor marred the second. I appreciated the long history An okay book, combining a mathematical history of probability theory with its use in risk management within modern day financial markets. The author, Peter Bernstein, a prolific financial historian, attempts to present a detailed history of the mathematics of probability and then apply that history to modern finance. In the first he was successful, but an overly detailed attempt to prove his theory of the blissfully ignorant professional investor marred the second. I appreciated the long history of probability as a mathematical philosophy, from the ancient attempts to break from the concept of divine will through to the 17th century’s fascination with the roll of dice. Bernstein also did a good job in explaining the application of these theories as they were developed, presenting many of the more famous enlightenment mathematicians not as theoretical academics but as meaningful contributors to the “industrious revolution” in the early post-modern era. He works this history up to the modern age, through game theory and the post-WWII data revolution. But the narrative slowly transforms from the wider topic of probability and risk across many industries to a very narrow focus of their use in financial markets. Despite hyping risk management across different sectors in the book’s introduction we are only introduced to the fruits of the preceding mathematical history via the business cycle swings of the 1970s and 1990s, amongst other failed attempts to appreciate financial risk. This wasn’t all bad, amongst other great financial education points I have a much better appreciation for derivatives after the fascinating chapter on the subject. But the book does leave the impression that the work of the Bernoullis, Gauss, and others was solely for the purpose of understanding the risk calculations associated with a stock purchase. The reader is left to their own devices in extrapolating these risk concepts to other areas of use. Highly recommended for those wanting to explore in detail the origins of probability theory and its role in financial market decisions.

  18. 5 out of 5

    vemban.muthukumar

    Simple and Erudite To trace uncertainity from the beginning of history and link upto modern day financial engineering makes this a very interesting book to read. At some places it was too intense...so intense that a normal cover to cover reader like me had to pause,reflect and then proceed.At the end of it you realise we are not there yet when it comes to human behavior and modern day economics.

  19. 4 out of 5

    Sarah

    Despite some interesting chapters about the history of risk and modern statistics, this book was generally long-winded and dull. Editing would have made this book much more accessible to a wider audience.

  20. 4 out of 5

    Kristina

    Read this instead of Sapiens.

  21. 4 out of 5

    Tiago

    A collection of short but amazing biographies of the bright minds that developed the most influential theories on Statistics.

  22. 4 out of 5

    Matt

    A bit wordy, but full of useful and interesting information on the development of risk analysis. I especially enjoyed the later chapters regarding markets & behavioral analysis.

  23. 4 out of 5

    Mario C

    Should be required reading for finance professionals because of the context it provides for how and why we got to the point where our models are what they are.

  24. 4 out of 5

    Alessandro Forte

    I am glad I read this book for the many historical insights it revealed me, a bit less for the way it has been written. It is fascinating to discover the roots of mathematics are lie in the Mediterranean Sea: words such as algorithm, algebra, cypher, hazard, calculus and many others come from Arab, Latin and Greek. The "Liber Abaci" by Fibonacci in the XIII century presented Arab numbers to Europe, and the Renaissance made probability a science when applied to game of chances. It's been refreshi I am glad I read this book for the many historical insights it revealed me, a bit less for the way it has been written. It is fascinating to discover the roots of mathematics are lie in the Mediterranean Sea: words such as algorithm, algebra, cypher, hazard, calculus and many others come from Arab, Latin and Greek. The "Liber Abaci" by Fibonacci in the XIII century presented Arab numbers to Europe, and the Renaissance made probability a science when applied to game of chances. It's been refreshing to learn how statistics as a science came to light only in the XVII century, counterintuitively not suppressed by religious superstitions but encouraged by a certain Catholic milieu such as the Jesuits of Port Royal, where the equivalent of a Victorian learned society had borne. There, Blaise Pascal met other mathematicians and developed his studies on probability theory. The same could be said for other ecclesiastic or believers such as De Moivre (normal distribution) and Bayes. At this point the storytelling becomes a bit messy, especially the section on the developing of statistical inference starting with the Bernoulli family. The books becomes fascinating again where it describes the Victorian rationalism applied to statistical science, with a good dose of British eccentricity of the men involved involved in these studies, like Galton. To sum up, an interesting book that could have been better.

  25. 4 out of 5

    Iqbal Latif

    Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk is a must-read; it exhaustively comprehensively elaborate on the concept of risk. Against the Gods, is a promising read. It is a good start on the foundations of probability, risk and modelling. It was written in 1996 and new needs a rehash but to begin with, it is helpful. Against the Gods is incredibly coherent, it is the history of the mathematics of probability. Bernstein asserts that it was only in the thirteenth century, wi Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk is a must-read; it exhaustively comprehensively elaborate on the concept of risk. Against the Gods, is a promising read. It is a good start on the foundations of probability, risk and modelling. It was written in 1996 and new needs a rehash but to begin with, it is helpful. Against the Gods is incredibly coherent, it is the history of the mathematics of probability. Bernstein asserts that it was only in the thirteenth century, with the Hindu-Arabic numbering system having restored letters as characters of usefulness, and the resulting notion of zero ascertained, that the methods and philosophy were in position for notions of algebra, calculation and then the probability to solely originate. From 1200 to 1700 AD, Cardano, Pascal and Fermat investigated probability, to achieve better odds in gambling. The word “risk” originates from the early Italian risicare, which means “to dare.” A risk is an option rather than a destiny. It all depends on how unrestricted we are to make selections, this is essentially the story of risk is all about. Without a clear perception of risk, you will face the insurmountable task to organize your life. Life is essentially mitigating risk. I read this book as syllabus and a course of study to understand risk and why people fail in their enterprise when they don't think about it and circumvent it properly. We need to be rational free agents to progress. It was dependence on the ‘will of Allah’ that Arabs remained restricted to Mediterranean and Columbus through risk mitigation and insurance strategised a trip across oceans. The Muslim sailors had no access to the insurance forbidden by manuscripts as interference with predestination ( you are born with your fate ) their ships once lost in the sea made them bankrupt whereas insurance helped the other seafarers. That is where the age of enlightenment came in to help human society from the enslavement of medievalism. You cannot depend on unseen invisible hand to help you overcome the challenges in your enterprise. 1. What is risk aversion? The extent we are willing to go in making decisions that may prompt others to make decisions that will have a hostile impact for us. 2. What was the main impact of #Enlightenment and #Reformation? In the eighteenth century, Enlightenment identified the search for knowledge as the highest form of human activity. It was a time for scientists to wipe the dust of supernatural magical occult bizarre from their eyes. The Reformation meant more than just a change in humanity's relationship with God. By eliminating the confessional, it warned people that henceforth they would have to walk on their own two feet and would have to take responsibility for the consequences of their own decisions. 3. Why probability has to be understood? A message-driven home: One winter night during one of the many German air raids on Moscow in World War II, a distinguished Soviet professor of statistics showed up in his local air-raid shelter. He had never appeared there before. “There are seven million people in Moscow,” he used to say. “Why should I expect them to hit me?” His friends were astonished to see him and asked what had happened to change his mind. “Look,” he explained, “there are seven million people in Moscow and one elephant. Last night they got the elephant. 4. Why it is crucial to cut your losses and move on? You never get poor by making a profit and cutting your losses is also a good idea, but investors hate to take losses, because, tax considerations aside, a loss taken is an acknowledgement of error. Loss-aversion combined with ego leads investors to gamble by clinging to their mistakes in the fond hope that someday the market will vindicate their judgment and make them whole. 5. Why humans are split? Shefrin and Statman hypothesize the existence of a split in the human psyche. One side of our personality is an internal planner with a long-term perspective, an authority who insists on decisions that weight the future more heavily than the present. The other side seeks immediate gratification. These two sides are in constant conflict. 6. The way to make money? Nothing ventured, nothing gained, but don’t put all your eggs in one basket. The prospect of getting rich is highly motivating, and few people get rich without taking a gamble. 7. Why don't one should obey anything blindly? Vast ills have followed a belief in certainty. 8. What are the essential features of Risk management? The nature of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have no control over the outcome. 9. How societies who were first to invent tools of risk failed when they didn't adopt it? The earliest known work in Arabic arithmetic was written by al-Khowârizmî, a mathematician who lived around 825, some four hundred years before Fibonacci. Although few beneficiaries of his work are likely to have heard of him, most of us know of him indirectly. Try saying “al-Khowârizmî” fast. That’s where we get the word “algorithm,” which means rules for computing. It was al-Khowârizmî who was the first mathematician to establish rules for adding, subtracting, multiplying, and dividing with the new Hindu numerals. In another treatise, Hisâb al-jabr w’ almuqâbalah, or “Science of transposition and cancellation,” he specifies the process for manipulating algebraic equations. The word al-jabr thus gives us our word algebra, the science of equations. 10. Why, given their advanced mathematical ideas, did the Arabs not proceed to probability theory and risk management? The answer, I believe, has to do with their view of life. Who determines our future: the fates, the gods, or ourselves? The idea of risk management emerges only when people believe that they are to some degree free agents. Like the Greeks and the early Christians, the fatalistic Muslims were not yet ready to leap. 11. What is the key information you need and how to get it? The information you have is not the information you want. The information you want is not the information you need. The information you need is not the information you can obtain. The information you can obtain costs more than you want to pay. 12. Why increasing wealth is ebbing fun? Daniel Bernoulli first defined the systematic process by which most people make choices and reach decisions. Even more important, he propounded the idea that the satisfaction resulting from any small increase in wealth “will be inversely proportionate to the number of goods previously possessed.” 13. How to make losses painlessly affordable? Thaler recounts an amusing real-life example of mental accounting. A professor of finance he knows has a clever strategy to help him deal with minor misfortunes. At the beginning of the year, the professor plans for a generous donation to his favourite charity. Anything untoward that happens in the year—a speeding ticket, replacing a lost possession, an unwanted touch by an impecunious relative—is then charged to the charity account. The system makes the losses painless because the charity does the paying. The charity receives whatever is leftover in the account. Thaler has nominated his friend as the world’s first Certified Mental Accountant. 14. Who can take a better risk? People who start with money in their pockets will choose the gamble, while people who start with empty pockets will reject the gamble.

  26. 4 out of 5

    Jim Ainsworth

    I have heard Peter Bernstein speak and have read a lot of his articles, so I knew I might be in for a tough slog on this one, but the subtitle The Remarkable Story of Risk, got my attention. Like Bernstein, I spent the majority of my career in financial services (that may be the only similarity between us), so I have always been fascinated with people’s attitudes about risk and money in general. I also wanted to know more about my own proclivities on those matters. Sometimes, I look back in wond I have heard Peter Bernstein speak and have read a lot of his articles, so I knew I might be in for a tough slog on this one, but the subtitle The Remarkable Story of Risk, got my attention. Like Bernstein, I spent the majority of my career in financial services (that may be the only similarity between us), so I have always been fascinated with people’s attitudes about risk and money in general. I also wanted to know more about my own proclivities on those matters. Sometimes, I look back in wonder at the decisions (good and bad) that I made on risk and investing. If I had not been exposed to terms like reversion to the mean, the law of large numbers, random walk, puts, calls and other derivatives, I might have given up on this tome. But I dived in because Bernstein is not an academic, he is a practitioner. Any professor, however, should proudly display this book on his reading shelf. The book is well researched and goes deeper into the history of risk, the markets, currencies, etc… than I imagined it would. I thought I understood why the market is so driven by interest rates set by the Federal Reserve, but this book revealed more information that allows me to understand not just the emotions, but the mechanics and rationale that drives nanosecond traders. And yes, his treatise on the laws of probability, law of averages, explained to me not only my investing philosophy, but also the way I make decisions in my personal life (to go the doctor or not, etc...). There is also an excellent analysis on the history of religion and a cognitive analysis of how one might (or should) pursue the path of belief or atheism. The going was tough, but I’m made it though, and am better for it How to Become a Successful Financial Consultant: Making a Living Investing Other Peoples Money: Making a Living Investing Other People's Money

  27. 5 out of 5

    Svetlana

    This is a strange and infuriatingly confusing book. It is a composite of two parts: the part that describes the historic development of probability and statistics and the part that focuses on modern developments of risk management (20-th century modern). Neither is especially good. The historical part is mildly interesting. Although it is written haphazardly as a series of anecdotes about famous mathematicians and other important savants, it is good to place names and concepts into some sort of t This is a strange and infuriatingly confusing book. It is a composite of two parts: the part that describes the historic development of probability and statistics and the part that focuses on modern developments of risk management (20-th century modern). Neither is especially good. The historical part is mildly interesting. Although it is written haphazardly as a series of anecdotes about famous mathematicians and other important savants, it is good to place names and concepts into some sort of timeline. However, for all its historic ambitions, the book does not give a good, or sometimes any, description of socio-economic developments of different time periods which makes this part strangely out-of-time and also I suppose allows the author to get away with his premise in which god and fate are one of the key factors in developments in the concepts of probability and risk calculations. (What about the explosive growth of trade, for example?) The second part mostly abandons all historical ambitions and talks about recent developments in risk management. The problem of the author not being a good writer becomes an especially jarring obstacle to reading here. He does not explain the main concepts well, he overuses quotations, whether they are warranted or not and he goes off on tangents which distract from the main message. The most annoying bit is that it is obvious in some parts of the book that the author does not fully understand what he is talking about. Several reviewers pointed that out already and that is I would say the main and the biggest problem with this book. Give the first part a quick go if you are curious. You are better off reading other stuff for the second part.

  28. 5 out of 5

    Louis

    One problem with the teaching of math and statistics as practiced in the U.S. is that it often seems like a series of topics that are sprung out of whole cloth with no context. Against the Gods has two parts: a history of how views of risk developed within western civilization and then a examination of the tools and (mis)use of risk managements in modern finance. In doing so it paints a picture of not only what the principles of probability and risk management are, but why they were developed an One problem with the teaching of math and statistics as practiced in the U.S. is that it often seems like a series of topics that are sprung out of whole cloth with no context. Against the Gods has two parts: a history of how views of risk developed within western civilization and then a examination of the tools and (mis)use of risk managements in modern finance. In doing so it paints a picture of not only what the principles of probability and risk management are, but why they were developed and how they are used (and misused). I had assigned this book as part of a course in decision analysis within an engineering department to a mix of upperclassmen and graduate students. Most found the first have to be fairly uninteresting. But the payoff came later as Bernstein tracked the growth of the development of probability to its application in insurance then to financial instruments in general By the end of the book we were discussing the purpose of modern financial instruments in terms of risk management using both modern examples and the 15th century patrons of renaissance explorers. And seeing how not understanding the principles and purposes behind the techniques leads to trouble, many of my students said the book gave a greater appreciation for the probability and statistics they have been learning. And a gratifying note, in their report, many of the students stated that they did not read outside of their technical books, but after this experience they developed an appreciation for non-fiction and planned on looking for more such books to read in the years to come.

  29. 4 out of 5

    John McDonald

    Written in 1995, before the Long Term Capital Management collapse in the early 2000s and more than a decade before the disintegration of the credit markets largely due to debt derivatives which ostensibly existed to manage credit risks but ended up creating overwhelming risk to the security of credit markets, Peter Bernstein provides a comprehensive and readable history of the role of mathematics in assessing risk. His chapters discussing stock and credit markets are memorable and serve as a gui Written in 1995, before the Long Term Capital Management collapse in the early 2000s and more than a decade before the disintegration of the credit markets largely due to debt derivatives which ostensibly existed to manage credit risks but ended up creating overwhelming risk to the security of credit markets, Peter Bernstein provides a comprehensive and readable history of the role of mathematics in assessing risk. His chapters discussing stock and credit markets are memorable and serve as a guide to understanding the role of human behavior, not just statistical analysis, in stock and market movements. His analysis was predictive of a world where risk management strategies morphed into unreasonable risk creation. Because I lacked the sophisticated mathematical background necessary to fully understand how probabilities are calculated, I spent a lot of time trying to comprehend the concepts being discussed. Even so, Bernstein's clarity in writing helped educate me along the way. His review of the insights given in the work of Bernoulli, Francis Galton, and others from a distant age and more recently the work of Keynes, Tavrsky, Kahneman, and Arrow distilled risk management into a theory understandable even to those, like myself, who do not have any formal training but who have a deep interest in how markets work, how traders assess risk, and how people behave even in the face of the "odds." Knowing that measuring things against what is "normal' is essentially a mathematical exercise provided an insight I had not really thought about before. Can what is "normal" be measured which raises the question of how something "abnormal" is to be measured and defined, something central to risk-taking. Even if a reader does not understand or appreciate those portions of the book devoted to the mathematical concepts that advanced risk management, the book is 5-star worthy in how it treats the history of markets and the times in which the mathematical concepts advanced. The Code of Hammurabi in 1800 B.C., the author notes, provided significant provisions approving "bottomry", the idea that a merchant who borrowed money to underwrite maritime ventures would be absolved of remitting payment of the loan if the ship was lost at sea. This concept was found in life insurance when a soldier who was indebted was absolved of his debts if he died in battle. The brief discussion of the creation of the Lloyd's of London risk market, necessitated because merchants had everything to lose because of maritime disasters, illustrates why providing for risk of loss is absolutely necessary. Even Antonio from Shakespeare's Merchant of Venice is cited here. Without a way to underwrite risk, investment stagnates, undertakings would not be made, and innovation would, essentially, die on the vine. Plus, I have always enjoyed reading even the most cursory treatments of the founding of Lloyd's and the stock markets, and savor references to Shakespeare's Merchant. The contribution of John Maynard Keynes to understanding risk should never be understated. Keynes wrote that uncertainty is inherent in every human activity, and in most of those and all of business, risk of loss must be assessed before any undertaking. Knowledge too is uncertain and often undependable and creates gaps in managing risk (this may clarify the purpose of futures contracts). Keynes also believed that there relying entirely on historic precedent assumed something that was unlikely to occur today--historic precedent may not be entirely relevant or applicable, and generalities about the past in deciding how to proceed may defeat the purpose of the enterprise or activity. This "uncertainty" frees us from the belief that, in Bernstein's words, "we are not prisoners of an inevitable future. Uncertainty makes us free." Game theory teaches that we should play not to lose, rather than play strictly to lose, just for the sake of the odds. This concept, pioneered in game theory by John von Neumann and later by Oskar Morgenstern, is central to decision-making about risk. One of the most fascinating portions of the book, in my opinion, are those portions devoted to Prospect Theory, developed by Kahneman, Tversky, Thaler, and their academic partners. The ideas behind this are and were revolutionary: first, human emotion destroys self-control that is essential to rational decision-making, and second, people do not understand fully what they are dealing with in making investment and assuming risk, concepts referred to as "cognitive difficulties". Bernstein fills the book with anecdotes from history. The most interesting one to me was the telling of the issuance of the Confederacy's "7% Cotton Loan", that rogue State's attempt to attract funding for the Confederacy by promising repayment of the loan at 7% interest or, alternatively, repayment of the loan amount in an equivalent volume of cotton at a rate of sixpence per pound, a marked reduction from the 24 pence per pound being attracted on world markets. The loans were repayable over 40 installments at London, Paris, Amsterdam, or Frankfurt at the bondholder's option at "any time not later than six months after the ratification of a Treaty of Peace between the belligerents." Why repayment in cotton and at European, rather than Southern, or other US cities? Because the Confederacy itself, as well as the world, knew 2 things: 1) Confederate money was worthless and may likely remain so, and 2) the uncertainty of the Confederacy prevailing in its war (or prolonged uprising) against the United States. The bonds actually sold well and above par on the secondary markets until the word got out that Jefferson Davis, not only the leader of the terrorists known as the Confederacy was also a swindler who repudiated some bonds in Mississippi. Uncertainty in the affairs of men and the risk of loss requires both that we take risks but our prudence demands that we insure against the failure of it. We are by nature risk-averse, but life requires we assume risk in many forms. Options, derivatives (which can be like the razor, either it to shave or to commit suicide in the words of one financial reporter for the London Times), insurance are necessary and appropriate. Statistics and the mathematics behind it help us understand where and just how serious the risk is. Bernstein has done a great job describing i

  30. 4 out of 5

    Steele Dimmock

    The Remarkable Story of Risk? More like the history of statistics. I recommend you have at least univeristy level understanding of stats before you undertake this read. Some of the book was good, like when the author briefly touched on the golden ratio, insurance through Lloyds of London and derivatives. I felt like the he could have gone deeper in to some of the sections or extrapolate more applications of the newly discovered statistical calculations - ie through analysis of the bell curve and r The Remarkable Story of Risk? More like the history of statistics. I recommend you have at least univeristy level understanding of stats before you undertake this read. Some of the book was good, like when the author briefly touched on the golden ratio, insurance through Lloyds of London and derivatives. I felt like the he could have gone deeper in to some of the sections or extrapolate more applications of the newly discovered statistical calculations - ie through analysis of the bell curve and regression to mean machine manufacturers were able to predict the average school leavers understanding of engineering and no longer needed to train their own technicians to go onsite to replace machinery, as a the average school leaver was capable, reducing the service cost and bolstering the industrial revolution. But mostly this is a very dry tome with few redeeming qualities.

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