From Barnes & Noble
The Barnes & Noble Review
What is it that distinguishes the thousands of years of history from what we think of as modern times? This is the question Peter L. Bernstein asks in the beginning of his new book, Against the Gods, and the answer put simply is...risk management.
Risk management? Well, that's not very poetic, is it? But as Bernstein points out, risk is essential to the development of our society; this is as true as the maxim 'nothing ventured, nothing gained' is old. But how did we discover the proper method for calculating insurance premiums in the first place? At what price should a crop future be set so as to be fair to both buyer and seller? It is questions like these that Bernstein, the author of a number of books on economics and finance, answers as he traces the emergence of risk management from calculating the probability of dice games to insuring investment portfolios.
Risk management by definition has to do with 'maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and linkage between effect and cause is hidden from us.' But at the end of the day, a risk is still a risk no matter how carefully measured, so where does the time-honored 'gut feeling' come into play? This is the central question of Against the Gods, and the answers are enlightening.
We have Blaise Pascal and his probability triangle to thank for the birth of risk management. Pascal solidified the notion that there was a difference between playing games and thinking about playing games. His triangle of numbers is ageometric algebraic equation that can be employed to calculate, for instance, the odds that a team down one game to zero in the World Series has of coming back to win the pennant. (There are 22 combinations of wins and losses out of a possible 64 that the underdog will come back to win, by the way.) The problem with applying such calculations to real-life situations is that pure odds only work if each team has an equal chance of winning.
It wasn't until the Reformation that people began to that understand that they must take responsibility for their own decisions, and as Bernstein duly points out: 'Risk management only becomes possible when people are free agents.' So as awareness of self-determination spread, mathematicians put their minds to methods of determining risk while businessmen put their wallets towards using this information to limit risk.
It was in 1976, however, that one of the most highly developed forms of risk management heretofore imagined was spawned, from the mind of a Berkeley finance professor named Hayne Leland. For a premium, portfolio insurance guarded an investor against incurring huge losses in the stock market. Hayne had devised a scheme that severely limited the downside of the riskiest institution of all! For a time, everything went along gloriously for portfolio insurance, making millions for Leland, until the market crash of October 1987, when such huge losses could not be traded against the income of the premiums paid. At the end of the day, the best risk management failed in the face of the market's oldest precept: You cannot expect to make large profits without taking the risk of large losses. Related work was done by economists Robert C. Merton and Myron S. Scholes: For their mathematical theorems that accurately priced options (thereby drastically reducing the risk factor), they were recently awarded the Nobel Prize in Economics. Their theory is explained in depth in Against the Gods.
I felt a growing sense of anticipation as I read this book, expecting that the progress of risk management would lead me directly to the best investment strategies available. And though the book indeed follows this path, risk management as we know it today stops well short of achieving a foolproof method of playing the market. More to the point, it is human nature that does not allow these measurements to limit risk. "Against the Gods" reads like a good piece of historical fiction in which the events, facts, and dates come alive in the midst of the personalities who effected them. Pascal, for example, renounced mathematics twice in his life, both times turning to religion. With the claim of Renunciation, total and sweet, he gave up high living in favor of the monastery, leaving the unsolved intricacies of managing risks to future generations. And perhaps it is well he did, for it seems that we adhere more to the blind faith, rules of thumb, experience, instinct, and conventions that make up our gut than to the results of risk analysis.—Woodall Taft is a freelance writer who resides near Silicon Valley.
From the Publisher
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 challengingvolume 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
New York Times
Ambitious and readable. . .an engaging introduction to the oddsmakers.
Robert Ferguson
Peter Bernstein leads us effortlessly through the history of risk because he writes so beautifully. This is a book on a left brain subject that will have right brain readers lining up for more!.
William Kristol
A fascinating and unusual perspective on modern man's Promethean attempt to master risk. The book reads easily and provokes thought—a rare combination.
Wall Street Journal
An extraordinarily entertaining and informative book.
Marc Faber
In Against the Gods, Peter Bernstein, a scholar, historian, and successful investor gives us the history of great thinkers whose visions put the future at the service of the present..
John Kenneth Galbraith
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..
Charles P. Kindleberger
It's a sizzler!.
Washington Post Book World
Against The Gods appeared in the "Washington Is Also Reading..." section of The Washington Post Book World. The book is described as, "A comprehensive history of man's efforts to understand risk and probability, from ancient gamblers in Greece to modern chaos theory.
Money Matters
I must say that I enjoyed the book, it was written in a light-hearted manner"
Barton M. Biggs
This looks like a new classic to me..
Robert Heilbronerc
No one else could have written a book of such central importance with so much charm and excitement.
Publishers Weekly
Risk management, which assumes that future risks can be understood, measured and to some extent predicted, is the focus of this solid, thoroughgoing history. Probability theory, pioneered by 17th-century French mathematicians Blaise Pascal and Pierre de Fermat, has made possible the design of great bridges, electric power utilities and insurance policies. The statistical sampling methods invented by dour Swiss scientist Jacob Bernoulli undergird diverse activities such as the testing of new drugs, stock-picking and wine tasting. Bernstein (Capital Ideas) animates his narrative with a colorful cast of risk-analyzers, including gambling addict Girolamo Cardano, 16th-century Italian physician to the Pope; and John Maynard Keynes, whose concerns over economic uncertainty compelled him to recommend an active, interventionist role for government. Bernstein also traces the development of business forecasting, game theory, insurance and derivatives, and surveys recent advances in risk forecasting made possible through chaos theory and by the development of neural networks.
Library Journal
For several centuries, mathematics has been the language of the exact sciences. Only in the 20th century has mathematics become predominant in other fields, particularly economics and finance. In this book, Bernstein (Capital Ideas: The Improbable Origins of Modern Wall Street), head of an economic consulting firm, traces the development of probability theory from its beginnings in analyzing games of chance, through its application to statistical theory and insurance, up to its present use in developing investment strategies to control risk. He includes excellent sections on portfolio analysis and on investments in derivatives. Bernstein clearly describes the people, their work, and the events that have revolutionized the thinking on Wall Street. -- Harold D. Shane, Baruch College, City University of New York
Library Journal
For several centuries, mathematics has been the language of the exact sciences. Only in the 20th century has mathematics become predominant in other fields, particularly economics and finance. In this book, Bernstein (Capital Ideas: The Improbable Origins of Modern Wall Street), head of an economic consulting firm, traces the development of probability theory from its beginnings in analyzing games of chance, through its application to statistical theory and insurance, up to its present use in developing investment strategies to control risk. He includes excellent sections on portfolio analysis and on investments in derivatives. Bernstein clearly describes the people, their work, and the events that have revolutionized the thinking on Wall Street. -- Harold D. Shane, Baruch College, City University of New York
The New York Times
Ambitious and readable. . .an engaging introduction to the oddsmakers.
The Wall Street Journal
An extraordinarily entertaining and informative book.
What People Are Saying
John Kenneth Galbraith
"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."—Professor of Economics Emeritus, Harvard University
Robert Ferguson
"Peter Bernstein leads us effortlessly through the history of risk because he writes so beautifully. This is a book on a left brain subject that will have right brain readers lining up for more!"—Managing Director, Bankers Trust Australia Limited
William Kristol
"A fascinating and unusual perspective on modern man's Promethean attempt to master risk. The book reads easily and provokes thought--a rare combination."—Editor and Publisher, The Weekly Standard
Marc Faber
"In Against the Gods, Peter Bernstein, a scholar, historian, and successful investor gives us the history of great thinkers whose visions put the future at the service of the present."—Managing Director, Marc Faber Limited, Hong Kong
Barton M. Biggs
This looks like a new classic to me."—Chairman Morgan Stanley Asset Management, Inc.
Charles P. Kindleberger
"It's a sizzler!"—author of Manias, Panics & Crashes
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