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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-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.

Advance Praise for Against the Gods

"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."a??John Kenneth Galbraith Professor of Economics Emeritus, Harvard University

"No one else could have written a book of such central importance with so much charm and excitement." a??Robert Heilbronerc author of The Worldly Philosophers

"A fascinating and unusual perspective on modern man's Promethean attempt to master risk. The book reads easily and provokes thoughta??a rare combination." a??William Kristol Editor and Publisher, The Weekly Standard

"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!"a??Robert Ferguson Managing Director, Bankers Trust Australia Limited

"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."a??Dr. Marc Faber Managing Director, Marc Faber Limited, Hong Kong

"This looks like a new classic to me."a??Barton M. Biggs, Chairman Morgan Stanley Asset Management, Inc.

"It's a sizzler!"a??Charles P. Kindleberger author of Manias, Panics & Crashes

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 more distant past. Against the Gods, a narrative that reads like a novel, chronicles the remarkable intellectual adventure that liberated humanity from the oracles and soothsayers by means of the powerful tools of risk management that are available to us today. This is a richly-woven tale of Greek philosophers and Arab mathematicians, of merchants and scientists, gamblers and philosophers, world-renowned intellects and obscure but inspired amateurs who helped discover the modern methods of putting the future at the service of the present, replacing helplessness before the fates with choice and decision.

When investors buy stocks, surgeons perform operations, engineers design bridges, entrepreneurs launch new businesses, astronauts explore the heavens, and politicians run for office, risk is their inescapable partner. Yet their actions reveal that risk today need not be feared: managing risk has become synonymous with challenge and opportunity.

Bernstein presents fascinating vignettes of such towering intellects as Omar Khayyam, Pascal and Bernoulli, Bayes and Keynes, Markowitz and Arrow, and Gauss, Galton and von Neumann. With his engaging literary style, he clarifies the concepts of probability, sampling, regression to the mean, game theory, and rational versus irrational decision making. The final sections of the book raise important questions about the role of the computer, the relationship between facts and subjective beliefs, the impact of chaos theory, the role of the burgeoning markets for derivatives, and the looming dominance of numbers.

Against the Gods: The Remarkable Story of Risk is that rare book that turns the most profound issues of our time into pure reading pleasure.

Customer Reviews:

• Fun with statistics
  I happen to enjoy both history and math, so this book about the history of statistics was right up my alley. That sentence alone probably dooms me to perpetual nerd-dom, but that's ok because Bernstein has done a strong job of taking a subject that could be dull and really bringing it to life and infusing it with color.
  
  If the topic of the history and evolution of statistics sounds interesting to you than I believe you've found a winner....more info
• Disappointing - Not really about the stock market
  I bought this book because it was suggested after I ordered other books relating to the stock market and investing. My initial impression after reading the reviews (before ordering) was that it dealt mainly with risk associated with stock markets, but after reading through, I find that it is more of a history book - related to risk, yes - but with very little content or correlation to investing. There are snippets and references but even after half of the book is complete, there is no definite flavour on investing.

  For those interested in the pure historical development of probabilistic reasoning and risk, this is a well researched book, but for those whose are misled by the notion that it helps you to understand these risks in terms of the market, well, you've been misled....more info

• Five stars
  Great book on risk and on the history of risk....more info
• Truly Remarkable
  This one was used as a text for a class in markets at my college. What makes the subject - and this book - interesting is that the inevitable math is placed in an historical context. It's not the sort of book I would read on a cold winter night in front of the fire, but Bernstein did manage to make a rather dry - albeit valuable - subject remarkably interesting....more info
• Mathematics for freethinkers, for gamblers, for bankers
  Any reader who picks up "Against the Gods" for mathematical amusement will be surprised to find out that "the revolutionary idea that defines the boundary between modern times and the past is the mastery of risk." This claim, in the introduction, should be evidence enough that this book is no brainteaser, but rather the chronicle of a concept that has transformed how society thinks about the future.

  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."...more info

• Great read! A must read history for any gambler or investor.
  Bernstein is a true historian that writes in a very easy to read and engaging style. I had a hard time putting this book down. He takes you through the rise of mankind's understanding of risk from the intervention of gods to gambling with bones to game theory and beyond. This will also get you a quick diploma in the history of mathmatics along the way. Berstein also writes The Power of Gold: The History of an Obsession which anyone who likes Against the Gods will also want to read (or anyone who wants to learn about the history of Gold and money)....more info
• Good historical review of discoveries that have led to modern risk management
  The positive: if you've taken various statistics classes through college and know a little to a lot about risk management, you'll probably feel enlightened by the end of the book about the progression of knowledge that has led to current risk management standards and theory. It's generally an entertaining read.
  
  The negative: At least one illustration (game theory, p 241, 1998 (2nd) edition) in the book is wrong; if you know theory (and in some cases, application -- as with various points on investing), you'll laugh (or cringe) at some of the examples as abbreviations of knowledge. On the other hand if you don't know theory/application, you may end up being perplexed if you stop to think about some of the examples and a few terse statements of alleged fact made by the author. But most readers won't notice most of this.
  
  Overall: I feel enlightened for having read of the origin of much of risk management in one story. It was a quick read. Yet I wouldn't recommend it to non-statisticians (excepting math buffs), and my recommendation would be muted to statisticians and (less so) risk managers, unless they enjoy history....more info
• A very good history of probability, statistics and risk
  Bernstein has put together an interesting treatment of some rather dry materials. He traces the history of mankind's dealing with risk from the basics of probability (mostly based on renaissance gambling) through the 19th century development of statistics (means, bell curves, etc) to modern risk management (the stock market, options, and derivatives). Although all of these topics would be covered in more detail in mathematics, statistics, or finance courses, Bernstein weaves them together in a compelling way.
  
  Full of interesting stories, it starts to get more technical and difficult to read at the end. An eye-opener on how helpless we would be without statistics and mathematical thinking that we now take for granted....more info
• Surprisingly Interesting and Educational
  Who would have thought that the history of stastics would be interesting? It surely is when Bernstein tells it. Highly recommended....more info
• Delightful and thought provoking book
  This is one of my favourite books. It stimulated me to think about stock and stock option trading in news ways. It is so readable it served as a beach holiday book! Well done Mr. Bernstein....more info
• Stocks go to extremes and this book ponders why
  Bernstein takes more time to get to what might be useful to the reader than he ought, but his effort culminates in quantifying how winners and losers are made in financial markets from past to present. Given the present crash in stock price there are many who could benefit from reading "Against the Gods".

  The book traces the beginnings of probability theory and its evolution into insurance companies and ultimately to its contribution to the use of derivatives as a means of reducing uncertainty in the outcomes of "futures" transactions.

  The book could have dealt more with behavioral economics, but when it does engage it delivers a message that is beneficial. All students, high school thru college, should be taught about risk measurement.

  Man's capacity for self deception is what generates irrational decision making. The book covers this subject in ways that will not fail to impress the rader. Far better it would be if we could learn to be less emotionally involved with our investments and more by the numbers. Professional fund manager Robert Olstein's Financial Alert Fund examplifys a by the numbers value approach along with intense scrutiny as to how companies keep their books. He buys companies with excess cash flow for half of what he thinks they're worth and sells them when they go up 30%. He follows the prescription outlined in this book and beats the S&P index yearly. His is a real life example of the value of buying and selling with no emotional attachment to the investment. This book will help you understand why this approach works.

  Given the collapse of the CPA-Consulting firm of Arthur Anderson and the unveiling of current corporate accounting abuses would suggest that we all could benefit from a rise in the level of our financial sophistication. This book is a good first step....more info

• Are you risk-seeker or risk-averse?
  According to this book you are both, it only depends on the point of view that is presented. I enjoy the book from the beginning to end, especially the last three chapters. The history and analysis of rational behavior is enlightening, to anyone who has ever thought about the process of decision. ...more info
• Odds Are, You'll Like It
  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. :)
  
  ...more info
• Great Read
  Must for someone who is getting his feets wet in risk management..The last chapters tell you interesting things about stock market and how they work !...more info
• fantastic
  for many years, i have been the owner of this wonderful book. i re-read it and keep on learning about risk. i trade and invest in the local market (Philippines), and am making good money....more info
• probability good; Wall St. ridiculous
  I read this when it came out and thought it was pretty good. The first half, about how people figured out how probability worked, was really entertaining. The end, about how the geniuses on Wall St. conquered risk, is so wrong it's hilarious. Bernstein is a victim of what Taleb calls the ludic fallacy -- mistaking well-defined games like craps for the truly unpredictable.
  
  So go read "The Black Swan" or "Fooled by Randomness" instead....more info
• Against the Gods and Trading System Design
  Firstly , this is an outstanding literature review on the history of risk.
  
  The one central idea of the book is that price movements tend to revert to the mean. In other words if the price is breaking through a band or channel placed around a price. The price is most likely to revert to the mean price rather than continue up (or down) through the band.
  
  Thats it. Simple but very useful piece of knowledge.
  
  ...more info
• A non-financial planner who loved it
  Bernstein's book effectively reviews the history of numerical measurement and probability theory, then veers into a history of financial instruments up to the mid-90s (when the book was released). He has an excellent touch for presenting complex philosophical and financial concepts in easy-to-understand terms, although I must admit to a bit of confusion in the sections covering modern markets, including derivatives. My interest was in the first two thirds of the book which anyone who teaches courses in statistics should read, if only for a little background. A rather esoteric topic, to be sure, but if you are already intrigued by such things, you will not be disappointed....more info
• Lucid, accessible history of risk management
  This work is a minor classic of financial literature. Business historian Peter L. Bernstein wrote it during the early 1990s, when faith in the power of quantitative models and financial engineering was at its apex, and he tells a heroic story. Beginning with Greek mythology, Bernstein shows how cultural ideas about risk and probability evolved through Arab mathematics, the European Enlightenment and Chicago School economics. He writes in a spare, straightforward style, and manages to convey the essentials of financial theory and the essences of great economists without losing the reader in a maze of equations. Of course, the 2008 financial crisis cast probabilistic models and financial engineering as global market villains. In retrospect, that makes Bernstein's evident admiration for those models seem rather touchingly ingenuous. Nonetheless, getAbstract finds that this is still one of the best popular introductions to the development of financial science....more info
• Excellent read!
  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....more info

• Insightful
  Though I'm no investor of bonds and stocks, I happened to pick up Against the Gods in a need to read and learnt of the game of risk that's been so wonderfully played out in this book.
  There's little technical jargon and what's technical is made very comprehensive, interesting and (when it starts to tickle your mind whilst bringing in insights) entertaining.
  As if a ballet about Wall St, Against the Gods will offer anyone something for the long or short term, intangible or otherwise....more info
• Moral: There is very little new under the sun!
  As I went through the book, one thing I realized was that we seem to attribute pathbreaking ideas to people without realizing the history behind it all. For instance, it was amazing to learn that Louis Bachelier had derived an option pricing formula (albeit not very robust) before Einstein could discover the properties of Brownian Motion and well before Norbert Wiener's discovery of the Wiener Process! The insight of Daniel Bernoulli on the logarithmic nature of the utility of wealth is in some ways the foundation for Marshallian Utility Theory which in turn, I would argue, is the basis for Lord Keynes' Consumption Theory. This is not to say that we should not give credit to M/s. Black, Scholes & Merton or Lord Keynes but that we should understand that discovery of something entirely new happens very very rarely like Sir Isaac Newton's discovery of Gravity.

  All in all, a wonderful book. The chapters on Game Theory and Behavioral Finance deserve multiple reads....more info

• A remarkable rational attitude against rational Gods
  2 crucial ponits in this book:
  
  1.Sociological: Bernstein describes how risk was first imagined as an essentially modern cultural form and significantly operationalized in early mercantile capitalist shipping, where individual losses in rapidly expanding global trade become large enough to encourage their socialization in insurance arranegemnts. This book implies some viable if crude forms measurement and scaling of risk. In his narrative, risk was there waiting to be discovered, carrying its own intrinsic meaning, which the visionaries, through their heroic powers of access to msteries of Nature, were able to reveal to men of commerce and others who could then drive the economic, cultural and technological revolution of modernity. We can note from this account of risk how an implicit normative framework`and a claim of control are advanced as defining features of this new state`of enlightenment. It is this scientific risk discourse which gives total control`of `the future at the service of the present', the implication being that risk`analysis identifies and domesticates all significant future consequences of the`relevant actions. In this way ignorance and unanticipated consequences - lack`of control - lying beyond the reach of existing scientific knowledge, thus`potentially embarrassing in future to risk assessment, are seamlessly deleted.`Risk is thus assumed to define the full sphere of conceivable meaning for considering`new technologies and their implications, and science reveals this`independent meaning. (Reference, Wynne:Reflexivity inside out?)
  
  2. Historical: While it is apparent to historians that both Khayyam and Kharazmi were Persian thinkers, the author in keen to be selective inattentive to this fact such that he argues the system of numbers were imported from Arab world to West whereas it was firstly introduced to Arabs at the time Persia was invaded by them. Hence the author's historic mind-set starts from 12th Century while long before which is 500 B.C. risk used to be engineered among Persians. (Reference, Channel History-Engineering an Empire: Persia)...more info
• A Dry Read - but worth it if you are interested in the history of Risk
  I ran into this book while studying for my Black Belt in Six Sigma. As a professional engineer, in the field of Energy - this kind of book peaks my interest.
  
  I learned much about the long history of Risk, and the now better understand the use of risk in today's business world. Much of the book includes narrative detail, however, I believe much of this material will fade in my memory over time. I found it an interesting read, but not exactly what I was hoping for.
  
  In fairness - the author did an excellent job with a difficult subject....more info
• The inevitable nature of risk
  Dear Amazon.com Reader,

  All I can say for starters is "what an excellent work!". This book is an amazing account of the history of risk and it's role in society from the distant past, through the ages and right up to the present day. It gives a charming and fascinating insight into the world of risk taking and risk management, told with all the ease of a great communicator whose subject fits them like a kid glove. I read this book alongside a heavier tome on Risk Management - Mr Philippe Jorion's excellent "Value at Risk: The New Benchmark for Managing Financial Risk" that is - and I am thankful that I did, because not only did it act as a much welcomed counter-balance to some hefty risk theory but it also introduced me, in a light and accessible manner, to some of the concepts that I had been struggling with - an experience much like as if one could access a trusted source of profound knowledge on a subject, in my case Risk Management, without feeling that your brain has been given the once over with a common kitchen liquidizer.

  An excellent, informative and interesting read. I would recommend it to anyone who wants a thorough, intelligent and readable introduction to risk.

  However, one word of caution, this book has not been written to spoon-feed the less than enquiring mind, and to get the best out of it one really has to be a little more proactive and participatory. In some places it's like as if there are little puzzles left for the reader to think-out for themselves - which I find really quite engaging, a rare treat, the nearest thing to interaction one could get with the author via their written word.

  Best regards,

  martyn_jones@iniciativa.org...more info

• The Evolution of Risk Management, or The Timeless Pursuit of Favorable Odds.
  In "Against the Gods", Peter Bernstein proposes that the capacity to manage risk sets modern civilization apart from all that came before it. It allows us to take risks and make decisions crucial to any kind of progress. This book tells the story of how and why our understanding of risk came to be what it is now, from the absence of mathematical probability in the ancient world, through its emergence in the Renaissance, to the evolution of our modern theories of risk management in finance. Though he concludes that "the goal of wresting society from the mercy of the laws of chance continues to elude us", Bernstein paints an exciting picture of how the ideas behind risk management develop and become increasingly sophisticated as technologies and economics demand greater mastery of risk.
  
  "Against the Gods" has five sections, corresponding to historical periods in the understanding of probability and risk. "To 1200: Beginnings" is the weakest section, because it attempts to explain why probability did not emerge before the Renaissance, even though many civilizations possessed the mathematical sophistication to take it on. The hypotheses just aren't convincing, and I don't think I'd call the Greeks "the most civilized of all the ancients" either. But the Arabic numeral system with its concept of "zero" was the critical development during this time, as the author points out. "1200-1700: A Thousand Outstanding Facts" covers the invention of basic probability theory, statistics, and the beginnings of business forecasting in Renaissance Europe.
  
  Bernstein provides mini biographies of the many mathematicians, gamblers, and others who made significant contributions to our understanding of probability and risk, making this story one of human endeavor. "1700-1900: Measurement Unlimited" tells the story of risk in the Enlightenment, which introduced the concepts of utility, standard deviation, and regression to the mean as tools in measuring uncertainty. Bernstein begins using the stock market to illustrate problems of risk, a theme which will continue for much of the rest of the book. I was puzzled by the story of Francis Galton who discovered regression to the mean, much to his own chagrin, while researching eugenics. Genes don't slavishly regress to the mean. If they did, there wouldn't be over 400 breeds of dog in the world, most of which were created by 19th century selective breeding.
  
  "1900-1960: Clouds of Vagueness and the Demand for Precision" brings us into the 20th century with the development of modern theories of risk management, the influence of game theory, and the role of diversification. One chapter is dedicated entirely to measuring risks on the stock market. The last chapter, "Degrees of Belief: Exploring Uncertainty", takes a look at new ways of viewing human behavior toward risk that gave birth to the study of "behavioral finance". While many financial risk management models were built on Efficient Market Hypothesis, which assumes human choices are independent and collectively rational, Prospect Theory has shown that "human choices are orderly, although not always rational". In other words, people are predictably irrational, opening up a whole new way of analyzing risk where human behavior is involved. ...more info
• Life is a risk so the book is big
  The author seems to cover every aspect of risk. The book is so broad in scope that everything in it may not be of interest to every reader, but it is hard to imagine that every reader will not finding something of interest that is applicable to their lives -- be it insurance, investment (if you don't like derivatives, Peter Bernstein indicates that index funds might be just the thing for you) or the effect of seat belts on risky behavior.
  ...more info
• Both interesting and important
  The author of this book outlines the history of the theory of risk in the last 450 years and its modern metamorphosis into risk management. The reading is fascinating, giving many historical tales and anecdotes that one could only obtain from time-consuming consultation of many different documents or books. The author confuses skepticism with cynicism at times, especially when discussing the relation between modern financial engineering and risk management, but in general the dialog is pleasant to read, and offers many different insights into the different viewpoints of risk. This is especially true for the discussion of 'prospect theory' as first proposed by Daniel Kahneman and Amos Tversky and its elaboration of risk averse behavior. Readers sympathetic with prospect theory will find its inclusion refreshing, although it would have been even more helpful to such a reader to find a discussion of the relation between prospect theory and its expression, if any, in modern risk management.
  
  The author however seems not to be aware of the notion of 'model risk' that is embedded in modern approaches to risk management and financial engineering. This is apparent when he speaks of the inability of risk analysts to input concepts into computing machines that they themselves cannot conceive. The issue for risk management is not whether these concepts are exact representations or reality, but rather the cost or risk associated with their inaccuracy. In addition, risk analysts do not need to conceptualize on a level that is extremely far from current paradigms. They need not think the 'unthinkable" as the author believes that they do. Instead, their goal is to invent concepts, models or even new paradigms that allow risk managers to make estimates based on these concepts. But these managers do not view these models as sacrosanct, or as "oracles" as the author puts it. In fact there is typically a large amount of skepticism exhibited towards the models, and the managers at time do resort to personal intuitions and hunches.
  
  The author though is correct in his opinion of the huge role of machines in risk management and in finance in general. With each passing day these machines are given more responsibility for doing financial analysis, forecasting, trading, and even model building. And more importantly, they are beginning to actually construct concepts and theories about how markets work, with the guidance for the time being of human experts. This trend will continue, and with faster and faster machines on the horizon, and with more trust placed in these machines, one can expect even more volatility in the financial markets. This volatility will require even smarter machines to deal with the huge risk trade-offs that will be involved, and it is likely that the machines will compete fiercely with each other as the strive to optimize the financial health of the firms that deploy them.
  
  Thus there are very challenging times ahead for risk management, and therefore it is important to keep its role in proper context. It is not done for the sake of it, and it depends on conceptions and theories that were developed centuries ago, as the author of this book shows in great detail. It is wise to keep in mind these historical origins to the same degree that risk algorithms depend on historical data. Risk in the twenty-first century will dwarf anything that has come before, and new political ideologies. legal and regulatory frameworks, and systems of ethics will arise just to deal with its complexity. The degree to which humans are overwhelmed by this risk will be inversely proportional to their willingness to learn from history as well as depart from it, and to interact with the most complex technology ever constructed.
  ...more info
• Remarkably Enjoyable
  This was a very entertaining expose of how men love games of chance and our need to consider ourselves lucky while we cope with an often hostile and chaotic existence. Bernstein gives countless examples of how a feeling of luck gives us a sense of control over our environment, whether or not we are correct in that assumption. He makes a case that logical errors are almost a necessary part of human comfort....more info
• A Learned Companion Volume to an MBA Course in Risk Management
  Against the Gods was written with a public in mind. It is mainly intended for the professional investor, who deals with notions of risk and uncertainty on a daily basis, and for MBA students who wish to complement their courses in probability theory and financial analysis with a learned companion volume. It will provide such readers with a cultural perspective on the history and cultural significance of risk. According to Peter Bernstein, the taming of risk and its breakdown into something quantifiable and manageable defines the boundary between modern times and the past.
  
  Why did humanity wait the many thousands of years leading up to the Renaissance before breaking down the barriers that stood in the way of measuring and controlling risk? The idea of risk management emerges only when people believe they are to some degree free agents. The notion of risk implies that the future is more than a whim of the gods and that men and women are not passive before nature. For all their wisdom and skills as mathematicians, the Greeks turned to the oracles instead of consulting their wisest philosophers when it came to predicting the future. The Arabs used the numbering system developed by the Hindus, but they too believed that men's worldly destiny is always determined by God.
  
  The Renaissance and the Protestant Reformation would set the scene for the mastery of risk. It put human beings squarely in control of their own destiny, and enjoined them not to remain passive in the face of an unknown future. Like Prometheus, the Renaissance Man defied the gods and probed the darkness in search of the light that converted the future from an enemy into an opportunity.
  
  But to put the future at the service of the present, people needed more than a free-thinking spirit, a passion for experimentation and a willingness to take risks. For most of the Middle Ages, scholars had to depend on a clumsy numbering system based on the Roman alphabet. Fibonacci's Liber Abaci, published in 1202, was a spectacular first step in making measurement the key factor in the taming of risk. Cardano's obsession with gambling led to the first exploration of probability in 1565, but his Liber de Ludo Aleae wasn't published until 1663.
  
  It took a French Connection to lay the foundation of probability theory. The first French Quants appeared in 1654 when the Chevalier de Mere, a nobleman with a taste for gambling and mathematics, challenged the famed mathematician Blaise Pascal to solve a puzzle. The question was how to divide the stakes of an unfinished game of chance between two players when one of them is ahead. Pascal turned for help to Pierre de Fermat, a lawyer who was also a brilliant mathematician. The outcome of their collaboration led to an explosion of mathematical innovation.
  
  Probability theory owes much to games of chance because gambling provides an ideal laboratory in which to perform experiments on the quantification of risk. But God was never far from Pascal's thoughts. In his Pensees, he frames the question of whether to believe in God in terms of a wager or a bet which reason cannot answer. Ian Hacking, the Canadian philosopher, asserts that Pascal's line of analysis to answer the question of belief is the beginning of the theory of decision-making. Pascal's fellow Jansenistes from Port Royal were also well-versed in decision theory and their Logic, published in 1662, was a reference throughout Europe up to the nineteenth century.
  
  Whether motivated by God, or by gaming, or by commerce, or by the law, the same kind of ideas emerged simultaneously in many minds. This spurt of mathematical innovation was to last about a century, and all the tools that are now used in risk management and in the analysis of decision and choice stem from the developments that took place during that period. In England, John Graunt and William Petty were compiling numbers of births and deaths in London, laying the ground of statistical analysis. Edmund Halley carried the analysis further by breaking down the population into an age distribution and calculating life expectancies. Later in the eighteenth century, Jacob Bernouilly, Abraham de Moivre, and Thomas Bayes showed how to infer previously unknown probabilities from the empirical facts of reality, and invented thenormal distribution, the standard deviation, and the modern method of statistical inference.
  
  That's where the author kind of lost me. The rest of the story includes memorable characters: Carl Friedrich Gauss, who was saluted by Napoleon as "the greatest mathematician of all times" ; Francis Galton, whose obsession with measurement led him to envision a science of eugenics ; Frank Knight, the Chicago economist who never forgave Keynes for having relegated him in a footnote of his Treatise on Probability ; and many others. But Bernsten often interrupts his narrative with practical advise for investors that could have been better addressed in a separate volume, and he loses focus with digressions on behavioral finance or neural networks. The commonly practical takes over the highly speculative, and the big questions that the pioneers of risk measurement grappled with, the "gods" of the title, have been driven out of the picture.
  
  The author concludes by quoting the great statistician Maurice Kendall, who once wrote: "Humanity did not take control of society out of the realm of Divine Providence to put it at the mercy of the laws of chance." Well, mankind did not conquer risk against the gods of chance to put it at the mercy of bean counters and stock traders. ...more info
• Great historical survey, a little light on current risk mgmt
  This book immediately grabbed me - I have a passion for learning about risk management strategies from options and futures to other instruments. What I loved about this book was the historical understanding of how the mathematical foundations were layed for the evolution of probability theory and risk management, and how that backdrop pervades modern life from portfolio theory, to odds-making, to how insurance companies set premiums, to how unbelievable it was for the Red Sox to come back from four games down last year vs. the Yankees.
  
  I've recently finished this book in concert with two others - The (Mis)Behavior of Markets by Benoit Mandelbrot and Hot Commodities by Jim Rogers. As a group, they are an interesting pairing. What's interesting is how the Misbehavior of markets de-constructs and points out the problems with a lot of the fundamental notions laid out in Against the Gods, with the thesis that many aspects of modern finance theory are wrong (under-stating volatility and mis-applying probability and normal distributions) to financial markets. It's a good counter-balance.
  
  While I found this book really engaging and interesting, I can't give it five stars because I felt a little let down at the end. I was hoping for a little more info about current ground-breakers in risk management, but it ended a little bit abruptly for me. But overall, I think this is a really excellent book worth reading if you have these interest areas....more info
• The elaborate stupidity of the stock market
  I recommend this book for its great amount of culture and the extensive view of the stock market it provides (although its point is sometimes hard to get)
  As a value investor, this book has helped me understand why everybody else is not also a value investor (although Warren Buffett sometimes appears in this book, he is rapidly dismissed)
  Not only are the main stock market actors stupid, but they are rationalizing it. This means that they are not likely to change soon. For one that intends to profit from that stupidity, this is basically good news....more info