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Red-Blooded Risk: The Secret History of Wall Street Hardcover – October 11, 2011
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"Wickedly original, one of the most fascinating accounts I have ever seen. A rollicking and highly opinionated read." (Risk Professional, October 2011)
“No one who reads Red-Blooded Risk: The Secret History of Wall Street will ever again regard risk management as a necessary but unproductive appendage of the financial industry. Other authors have chronicled how quantitative finance influenced investment management, but Aaron Brown has made a compelling case for a far more profound economic impact. . . If Red-Blooded Risk: The Secret History of Wall Street dealt with nothing more than the inadequacy of models used in highly important activities, it would represent a valuable contribution to financial economics. Brown’s book, however, covers a great deal more than econometric malpractice. Probably no other book offers as much insight into the process with so little resort to mathematical notation. Especially valuable are Brown’s discussions of middle-office risk management and value at risk, comparatively recent innovations that are essential to understanding modern financial institutions. Readers of Red-Blooded Risk should be prepared to have many of their assumptions challenged. Red-Blooded Risk is one of the most original and thought-provoking books reviewed in these pages in the past 20 years. No one who reads it will ever again regard risk management as a necessary but unproductive appendage of the financial industry. Other authors have chronicled how quantitative finance influenced investment management, but Aaron Brown has made a compelling case for a far more profound economic impact.”
—Martin S. Fridson, CFA Institute Publications Book Reviews
“Red-Blooded Risk mixes risk history and philosophy nimbly and provides a perspective that can be both refreshing and challenging (often on the same page). While the book is not without weaknesses, it is also brimming with original perspectives and controversial opinions. Those who work in risk management or quantitative finance will enjoy Brown’s story-telling and expert perspectives, even if they do not share his views, while non-quants will find his insights and confessions to be a useful glimpse into the psyche and ethos of an influential group of early quantitative risk takers.
—Roger M. Stein, Research and Academic Relations, Moody’s Corporation, as reviewed in Quantitative Finance (August 6, 2012)
From the Inside Flap
Everyone talks about risk, but few people give serious thought to what risk is. It's hard to describe it without expressing an opinionwe like things that are innovative, daring, creative, and bold; but those are exactly the same things that are reckless, speculative, risky, and irresponsible.
This book is the story of a group of young math whizzes who unleashed a revolutionone that reshaped our financial system and continues to echo through the halls of government, universities, and corporations today. In the 1970s, disillusioned with the sorry state of quantitative analysis, these young mathematicians (soon to be known as "quants") invented a new way of looking at probability and set out to prove it in the ultimate testing ground of odds-making: Las Vegas.
Once there, the quants turned conventional wisdom about gambling on its head. People said you can't beat the house, yet the quants managed to beat blackjack and other casino games. People said you needed a lifetime to learn poker, yet the quants' aggressive mathematical tactics swept the table against the best players in the world. Then the quants turned to sports betting, overturning the business model and squeezing out local bookies with a global organization that matched bets without taking risk.
Armed with their theories and experience, the quants raised their sights and headed to Wall Street, determined to replicate their success. Finance was a tougher challenge than gambling, but by the mid-1990s, the quants had remade Wall Street as thoroughly as they had remade Las Vegas. That transformation went unnoticed by the bond salesmen and investment bankers who ran Wall Street, as well as by academics, regulators, journalists, and investors; yet these changes caused both the greatest wealth creation event in the history of the world, and also to the financial disasters we have witnessed in its wake.
There's more here than just a lesson in recent financial history, however. Brown's story goes beyond the headlines to explore basic questions of economics, like the meaning of property and the nature of exchange. Along the way, it reveals secrets about the building of the pyramids, the glory of ancient Athens, the forcethat built the Roman Empire, a world-changing invention from medieval Italy, a secret in a mysterious letter written in 1654 and not decoded until the 1990s, and an essential aspect of the American Revolution left out of history books.
This book will change the way you think about everything from history, risk, and money to vampires, zombies, and tulips. It offers a fascinating and thrilling account of great events that have never before been described in an easily accessible form. There are bold ideas, colorful characters, and, most important, the keys to understanding the modern financial world and how its inner workings affect our daily lives.
More About the Author
I live on the upper west side of New York City with my wife. I have a son who is an undergraduate at the University of Chicago, and a daughter in high school.
Top Customer Reviews
1. Interesting story made boring.
The author has many interesting little facts, academic experiment results and logic. I believe they will make him an interesting person to chat with, or an interesting presentation in a conference or seminar. However they become boring in text mainly because of the book's prolixity and disorganized article structure.
2. Misleading titles:
Both the book title and the chapter titles provide misleading information to what the content will tell you. For the most obvious example, you can hardly expect too much history on the wall-street on the "secret history of wall street". You will expect to be traced back history as far as stone age about how ancient people (and even animals) react to risk. (Probably "the history that made wall-street"?)
3. Lengthy introductions before making a point:
Whenever the author tried to put forth an idea, the author will trace all the way to its origin, and the origin of the origin. You often find yourself reading something like this: "before we talk about C, let's talk about B first.". Then it will follow "before we talk about B, let's talk about A." The author believe the origin of his knowledge is very important and he would like you to be equaly fascinated by the evolution of his ideas. This is understandable perhaps given his math background as he would just felt inclined to proof every result. However I just find myself lost within the process like I got lost in a math class.Read more ›
Aaron is good friends with Nassim Taleb and they share similar views about risk. As compared to Taleb's Black Swan, this book is a faster, more entertaining read. It's less conceptually dense, but it probably packs more of a punch. This is the book to learn from. The practical philosophy about speculation presented by both books is that one should spend much of one's energy playing defense; one should be constantly paranoid about unlikely events that might decimate one's portfolio.
Red-Blooded Risk contains the best intuitive explanation of the Kelly Criterion contained in any book that I've read. It also has innovative material about the powerful role of exponential growth in economics and investing. Aaron lays out a convincing case for the idea that investors should spend much of their time looking for attractively priced "lottery tickets" (potential exponential growth that is underpriced by the market).
This book is about more than investing. Red-Blooded Risk is really a comprehensive guide to thinking about risk in life, and it's probably the best guide of this sort currently on the market.
Most Recent Customer Reviews
If you like taleb, this is a must read. I have not seen a better distillation of what finance is all about, and the personalities within it.Published 21 months ago by Caleb
I really don't know what to make of this book. Parts of it are hugely interesting, even brilliant, and other parts are simply strange. Read morePublished 23 months ago by investingbythebooks
Emerson said that America's geography is sublime but the men are not. Aaron Brown instantiates that statement by officiating this risk-ladden matrimony between conventional finance... Read morePublished on July 9, 2013 by Obinna Ajoku
This author walks through (rather, with his facility with words, sometimes gracefully flies high over, then zooms down for sharp-focus closeup of) what seemed like more or less... Read morePublished on April 1, 2013 by Phil O.
Excellent reading and very analytical.Would be interesting to hear what Taleb has to say!Comparing to other books it makes fun reading.Published on January 14, 2013 by Narendra Modi
While parts of this book were slow going, I found myself learning quite a bit from the book. If you want a more detailed explanation of how Wall Street works, and how it has... Read morePublished on January 1, 2013 by michael meyers
Aaron Brown's 400 page book on risk is a synposis of a life in risk management with keen insights on the technical as well as human elements. Read morePublished on April 18, 2012 by Abbas Riazati
This is the most interesting book on risk management I can remember reading. While I don't agree with everything in it, I found it consistently thought-provoking, and compelling... Read morePublished on February 27, 2012 by doctorwes
This book makes all sorts of interesting sounding statements and promisses of fascinating things that will be addressed later on in the book, but totally fails to deliver. Read morePublished on January 6, 2012 by MT