Against the gods: The Remarkable Story of Risk by Peter L. Bernstein is an outstanding book about the evolution of risk and man’s attempt to understand it. Against the gods follows the linear progression of man’s understanding of probability and risk. The book begins by chronicling the simple and superstitious financial and economic activities of the ancient times and traces the history of numbers and probability to today’s seemingly complex financial world of portfolio theory, derivatives, and risk management techniques.
Against the gods looks at the importation of Arabic numerals to the west. The book profiles the life and achievements of real thinkers such as John von Neumann- inventor of the game theory, Sir Isaac Newton, Harry Markowitz — a pioneer of the portfolio theory, Fischer Black — Black-Scholes option formula, Pascal, Fermat, the Bernoulli’s, Bayes, Quetelet, Galton, Jevons, Keynes etc. The book details the contribution of these men to man effort at understanding risk; it further discusses various theories ranging from the law of large numbers, bell curves, regression analysis, uncertainty theory etc.
In this book, the author focuses mainly on the history of risk, measurement of risk, risk management; risk associated with the world of finances particularly the stock market and economics. Stock market tools, products, and behavior are extensively discussed. Bernstein provides ample statistical analyses and proofs over the course of the book and discusses the psychological aspects of gains and losses involved in investing mainly in the stock market.
Towards the end of the book, Bernstein sketchily discussed some topics on the non-rational behavioral aspects of humans, how this behavior influences a decision on investment such as purchasing a company’s stock. Bernstein makes uses vivid examples to drive home his point. He discussed these so well, that one would wish, myself in particular, he had gone further.
Against the gods is a story styled book that looks at the development of theories that now hold sway in today’s world of economics. If you favor intellectual history and are looking to connect the dots between the building blocks of probability and risk analysis over the last four centuries this book may well captivate you and help you achieve your aim.
Against the gods was chosen as one of Business Week’s top 10 books of the year for 1996. When you are through with the book you will understand why it was rated highly then and still is on bookshelves now. Readers with a passion for investing and the associated risk would definitely this book the most.
