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206 of 221 people found the following review helpful
on April 26, 1999
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.
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282 of 312 people found the following review helpful
VINE VOICEon February 17, 2000
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.
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118 of 130 people found the following review helpful
on April 28, 2003
The book is a reasonably interesting history of the mathematical analysis of risk. Bernstein discusses the development of probability and statistical analysis, and even some of the more modern concepts behind portfolio theory. However, I was disappointed overall. The cover and title misled me---I was hoping for a history of how the understanding of risk and the development of analytical tools led to the development of insurance markets, etc., and fundamentally changed how businesses operated in the face of uncertainty. When a shipper could insure his cargo, instead of just waiting for bad news, how did that change the world? I want to know! Instead, I got to read about who discovered the bell curve. I'm trained in a mathematical field, so I felt the discussion got a bit tedious.
I felt, overall, that the discussion was aimed more at explaining the math in layman's terms rather than exploring the impact of these developments on how people do business and make decisions.
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96 of 115 people found the following review helpful
on March 21, 2001
The book was interesting in several ways. The author's central idea, that having a mature concept of risk management is a prerequisite for modern civilization, is intriguing, yet not fully substantiated by his book. Having studied Finance in business school, it was interesting for me to learn a bit of the history behind contemporary thinking on financial risk management (in other words, he explains who figured out & popularized the alpha/beta thing).
Towards the end of the book, he just began to touch on some of the non-rational behavioral aspects of humans, and I wish he had gone deeper. Some of the most interesting work in economics is being done today with the radical assumption that human behavior is driven more by emotion than by reason. Why do people make ill-conceived decisions about risk? Not really answered in this book.
The book is almost totally oriented towards financial risk, and doesn't really look at other forms of risk management. Although the writing style is engaging--this is NOT dry--there are some structural problems. The author wanders around a bit, and sometimes introduces ideas or personalities without ever explaining why.
It is important to mention that this is treated as a 'story', from the historian's point of view, and not as a text book. In this way, it is true to its title. The book cover makes no claims for this as an intellectual or academic treatment of the subject, which makes this a very accessible book. It isn't profound, and it is only mildly informative, but outside of the minor annoyances of some outline weakness, I enjoyed reading it.
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11 of 11 people found the following review helpful
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.
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18 of 20 people found the following review helpful
on January 9, 2004
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."
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17 of 19 people found the following review helpful
on September 13, 2003
The title of my review is aimed at warning those expecting to find a risk management manual in this book that they will be disappointed. So will those who expect to find the links between the evolution modern statistics and acturial science to the rise of insurance markets and risk management instruments which have proliferated in this century. Many other books quite ably cover these interesting topics.
Instead, the author provides a broad sweeping history of how modern statistics evolved and which answers some questions of why it took so long for modern risk management institutions to emerge. Ancient Greeks, among others, who appeared to be within easy reach of developing statisical theory, nonetheless relegated their fate to the whims of gods, rather than making them amenable to analysis with probabilities and actuarial tables. Tracing modern risk management from the time of Jacob Bernoulli's attempt to develop probabilities from sample data, the author also shows how a knowledge of probabilities can ultimately generate value. QUOTE Reality is a series of conneceted events, each dependent on another, radically diffeent form games of chance in which the outcome of any single throw has zero influence on the outcome of the next throw UNQUOTE The book closes with risk management innovations that followed the emergence of financial volatlity in the 1970s.
Ultimately, this book may be of less interest to statisticians and investment professionals, other than those who have a curious interest in how today's highly developed set of instruments, institutions, and policies around risk came about from the foundations provided in statistical theory.
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34 of 41 people found the following review helpful
on September 21, 2002
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.
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18 of 21 people found the following review helpful
on July 26, 2002
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.
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8 of 8 people found the following review helpful
VINE VOICEon May 2, 2007
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. :)
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