Against the Gods: The Remarkable Story of Risk

Peter Bernstein, author and consultant, begins with the ancient civilizations that came close but never actually thought specifically about risk. The reasons are many-for one, absent Arabic numerals, computational mathematics were impossible. More importantly, conceiving of risk required a profound metamorphosis of the way people thought about the future: mathematicians and philosophers could only develop risk mathematics once people were convinced that the future was unpredictable and depended on their choices more so than the whims of any particular deity.

Most of the advances in the field came from the seventeenth to the nineteenth century. Often, the impetus was gambling; in fact, most of the puzzles that mathematicians tried to solve by developing probability mathematics were related to card games or craps. After that came the actuarial science, with mathematicians gripping with questions of life expectancies and illnesses.

Only in the second half of the twentieth century does risk become highly mathematical, as it enters into economics and finance, where precision and quantitative data overtake rough estimations and qualitative analysis. But with the emergence of precision have also come severe criticisms-on one end from psychologists who have cast doubt on the robustness of the rational behavior hypothesis, and on the other, from chaos mathematicians who prefer non-linear and complex explanations that go against the intellectual tradition of statisticians.

The history of risk, readers will find out, is more interesting than expected. It is a story of gamblers, philosophers, mathematicians, economists, psychologists and many others. Most of all, it is a chronicle of an ever ending dream: to anticipate or even predict the future. Whether people will ever be able to do that is doubtful; but there is no better account of that quest than Mr. Bernstein's "Against the Gods."


Excellent read!   September 21, 2002
 31 out of 36 found this review helpful

Peter Bernstein's AGAINST THE GODS is an extremely informative and entertaining telling of the story of risk. Through the course of the book, he elucidates the basic concepts of risk in an informal yet highly effective manner. He delves into the human aspect quite a bit; we are privy to the trials and tribulations of those ingenious men who first pioneered the ideas behind chance and risk.

The primary purpose of AGAINST THE GODS is not as an introduction to risk management. For those who buy this book expecting such, you will be heavily disappointed. Instead, this is a terrific primer about risk and its history that will pique the interest of any person who has had little formal background in the science of risk management. The main strength of AGAINST THE GODS lies in its astounding clarity which does not come at the expense of comprehensiveness. Bernstein assumes no prior experience with mathematics or risk management. It is this accessibility which makes this the first book on risk you should buy.

In summary, I highly recommend this to anyone who has at least a passing interest in chance or risk. For those with experience in risk management, the history of risk presented in AGAINST THE GODS will still be very interesting. However, do not expect any of the ideas to be new.


Odds Are, You'll Like It   May 2, 2007
 6 out of 8 found this review helpful

The origins, historical progression, and modern concept of risk is
presented in "Against the Gods." From the abacus to rolling dice,
annuities, insurance industry origins, explorations, gambling,
military tactics, scientific research, to investing, and more. In
most things in life big and small, there is some element of risk is
involved. This book presents Risk, and how our civilization has
utilized it - and needed it - to evolve to where it is today.

Individuals and groups don't take a risk with the expectation that it
will fail (although there's awareness that failure is a possibility).
The *expectation* is not of failure.

Peter Bernstein made this topic fun and informative for those of us
that are 'non-numerically oriented.' Actually, the concept of risk
involves a lot of non-mathematical and statistical concepts.

The writing style and chapter titles are hip: "The Winds of the
Greeks and the Roll of the Dice, The Renaissance Gambler, The Measure
of Our Ignorance, The Man Who Counted Everything Except Calories, The
Failure of Invariance," and "Awaiting the Wildness," for example.

The modern and Western concept of risk began with the Hindu-Arabic
numbering system that arrived in the West about 700 years ago. The
more in-depth examination of risk truly began during the Renaissance,
resulting in exploration an the exploitation of resources.

In Chapter 10, "Pea pods and Perils," Bernstein emphasizes the
rock-solid concept of "Regression to the Mean" (RoM). This is true
especially concerning the historical trends and patterns of the
financial markets. Yet, he notes how difficult the Predictable
Regression of the Mean is for humans to plan with RoM, and around it.
There are three reasons why humans have trouble using the RoM in
decision-making: 1) It proceeds so slow that a 'shock' will disrupt
the process, 2) When the RoM is reached, as it is periodically
people don't recognize it and hover on either side of the mean, and
3) The old mean may be unsustainable, meaning the old Mean is being
replaced by a new Mean. But....there still is....a Mean.

Bernstein states on page 173:

"If you bet that today's normality will extend indefinitely into the
future, you will get rich sooner and face a smaller risk of going
broke than if you run with the crowd."

This strategy seems oriented for the long-term growth oriented crowd.
We witnessed the sheep and lemmings in the late 1990s that
jumped onto the Tech Bubble Wagon, only to get burned badly by not
getting off in time. (Or perhaps, the sheep got out in time, but the
lemmings didn't.) Some similarities In 2007 with the Real Estate SFH
housing and condo speculation, flipping, and sub-prime mortgage and
ARM market, currently.

A certain percentage of the human population are basically, lemmings.


Bernstein spent some time on Jacob Bernoulli. Bernoulli's notion of
"satisfaction resulting from any small increase in wealth will be
inversely proportionate to the quantity of good previously
possessed." And perhaps this is why King Midus was an unhappy man.

What are the consequences of excluding, avoiding, or making risk
illegal? In modern times, when the Soviets tried to administer
uncertainty out of existence through the government fiat and
planning, they choked off social and economic progress. Communism is
contrary to human nature. But much of it was that communism took
away the concept of risk.

Risky Businesses, or business involving risk: the insurance industry
actually goes back to the Code of Hammurabi in 1800 BC. Called
"Bottomry," the owner of the ship would take out a loan to finance a
ship's voyage. No premiums were every paid but if the ship was lost,
the loan didn't have to be repaid.

The concept of life insurance basically began in Greece and Rome. In
the Middle Ages, the growth in trade spurred the insurance and
finance industries in Western Europe.

Tons of info. on common things we usually don't think of know much
about, that you can further delve into: The American game of "craps"
came to Europe via the Crusades. The mathematical invention of the
"0" and the abacus which still is in our roots. The Abacus is the
oldest counting instrument in our history. The word "Abacus" comes
from the Greek word for "sand" and "calculate" comes from the Latin
word for pebble, "calculus."

John Von Neumann invented Game Theory. Defeat is highly likely of
you play to win rather than avoid losing. True in everyday business.
There are benefits to cooperation, that produces two winners or
semi-winners rather than on loser and one winner.

A great book. If you read it, I think the odds are that that you'll
like it. :)




"Quantitative Achievements" of Heroism   May 10, 2000
 7 out of 15 found this review helpful

I thoroughly enjoyed reading this book. In it, Bernstein "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 categories that drives Western society." Bernstein organizes his material within an historical framework:

To 1200: Beginnings

1200-1700: A Thousand Outstanding Facts

1700-1900: Measurement Unlimited

1900-1960: Clouds of Vagueness and the Demand for Precision

Degrees of Belief: Exploring Uncertainty

Bernstein examines hundreds of situations throughout history in which human beings found themselves against the gods and against the odds...some "winning" and others "losing" but all somehow contributing to an understanding of what risk is, of how it can be accurately measured, and of what the consequences of a given risk could be. As Bernstein suggests, many of the most heroic acts in history were undertaken without such understanding.

In the final chapter, Bernstein reiterates his central theme: "the quantitative achievements of the heroes we have met shaped trajectory of progress over the past 450 years. In the beginning, medicine, science, finance, business, and even in government, decisions that touch everyone's life are now made in accordance with disciplined procedures that far outperform the seat-of-the-pants methods of the past. Many catastrophic errors of judgment are thus either avoided, or else their consequences are muted." All of us are the beneficiaries of those "quantitative achievements" and of this book in which they are discussed with compelling eloquence.