Against the Gods - The Remarkable Story of Risk

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. --This text refers to the Hardcover edition.

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. 
Copyright 1996 Reed Business Information, Inc. --This text refers to the Hardcover edition.

Against the Gods is an outstanding book about the evolution of risk and man's attempt to understand it. Bernstein begins with ancient times and traces the history of numbers and probability leading eventually to today's seemingly complex financial world of portfolio theory, derivatives, and risk management techniques. Readers will learn about revolutionary thinkers including John von Neumann (inventor of game theory), Isaac Newton, Harry Markowitz (grandfather of portfolio theory), and the late Fischer Black (Black Scholes option formula) among others. Readers will also find enlightening stories about game theory, fibonacci numbers, chaos theory, the bell curve, regression to the mean, and more. Yet despite all the intelligence, computer power, and sophisticated techniques, Bernstein presents us with the growing body of evidence discovered by researchers including the late Amos Tversky and others that "reveals repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty." Against the Gods was chosen as one of Business Week's top 10 books of the year for 1996.

Bernstein has written a thorough book that traces the linear progression of man's understanding of probability and risk.
This is a journey that begins with the importatioin of the arabic numbering system to the West and ends with super-computer crunched chaos theory. In between lie the fathers (all men) of mathamatical understanding. These individuals are the story of AGAINST THE GODS. Bernstein survey's the intellectual contrubutions of each as man strives to understood basic probability, the law of large numbers, bell curves, regression analysis, uncertainty theory and everything else you dimly remember from college statistics classes. He spends the latter quarter of the book on risk and probability theory in the financial world, where theorists have developed portfolio analysis, volitility studies, hedging and sidebets and other quantatative market plays.
Credit to the author for balancing his story against the very high probability that much of what these thinkers sought may be unattainable. He frequently mentions the humanity that these people try to explain with laws formulated from observations in the natural world. Although rightly impressed with his intellectual frontiersmen, Bernstein has no problem recognizing that the uncertainty that has always eluded explanation is us and that it helps make life worth living and progress possible.
This book is interesting for what it is. A story of the development of theories. I would have enjoyed more of a focus on the applications of this intellectual progression that led to the development of insurance and financial markets. Though these elements are mentioned often, they provide the backdrop for Bernsteins survey of theory. I suspect another book awaits someone who will reverse the order and use theory as a backdrop for the mechanisms that have allowed the modern economy to flourish and develop. The story of insurance, speculation, the beginning of capital markets, a monied economy and the like spring from the intellectual movements so well chronicled by Bernstein. However, they are not the focus, which has the habit of making the reading dry and sometimes uninteresting to those not captivated by the actual numeric analyses and proofs which are amply offerred over the course of the book.
If you like intellectual history and are looking to tie the building blocks of probability and risk analysis together over the last four centuries than this book may well captivate you. If you are seeking an understanding of how these discoveries were applied to forge the modern economy we now take for granted you will find parts interesting but may well feel that the story is incomplete.