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Against the Gods: The Remarkable Story of Risk (Paperback)
by Peter L. Bernstein
| Category:
Risk, Risk management, Insurance, Investing |
| Market price: ¥ 218.00
MSL price:
¥ 208.00
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 Good for Gifts |
| MSL Pointer Review:
A remarkable history of risk and a great study of how we make decisions. |
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Author: Peter L. Bernstein
Publisher: Wiley
Pub. in: August, 1998
ISBN: 0471295639
Pages: 400
Measurements: 8.9 x 6.0 x 1.1 inches
Origin of product: USA
Order code: BA00092
Other information: New Edition
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- Awards & Credential -
A Business Week, New York Times, and USA Today Bestseller
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- MSL Picks -
In a narrative that reads like a novel, Against the Gods tells the story of a group of famous scientists and ingenious amateurs who actually discovered the notion of risk - of scientifically linking the present to the future. Like Prometheus, these pioneers equipped humanity with a set of tools that would spark the achievements of the modern world.
People constantly make choices, arrive at decisions, and take risks. Savers buy stocks, doctors perform operations, poker players figure the odds, spaceships soar into the skies, and business managers launch new products. Without the instruments of risk management, such decisions would be impossible, because no one could figure the likelihood of successful outcomes. Indeed, the idea that human beings need not look to the heavens or listen to soothsayers for advice is less than five hundred years old. Hence, without the modern techniques of risk management, most of these decisions would be inconceivable: no bridges would span our widest rivers, our great corporate enterprises would never have come into being, no lives would be saved by coronary bypasses, space travel would be a dream, and no one would play poker.
Against the Gods blends biography with history and science to show how famous thinkers like Pascal, Bernoulli, Bayes, Keynes Markowitz, Arrow and von Neumann paved the way from superstition to the super computer. But Bernstein tells of others as well: men who were less known but equally important in developing the theory and practice of risk management, including a few inveterate gamblers, two ministers, an anonymous group of monks, a doctor, a button salesman, and a composer of operas. The book explains suchconcepts as probability, uncertainty, the distinction between chance and skill, the interactions between gambling and investing, and rational versus irrational decision-making.
Target readers:
Investment bankers, CFOs, accountants, consultants, academics, MBAs, finance majors, and anyone else who is interested in risk management, investment banking, the Wall Street, and financial markets.
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Peter L. Bernstein is President of Peter L. Bernstein, Inc., economic consultants to institutional advisors and corporations. His semimonthly analysis of the capital markets and the real economy, Economics and Portfolio Strategy, is read by managers and owners of investments totaling over one trillion dollars. Mr. Bernstein is the author of many articles in the professional and popular press, as well as six books in economics and finance, including the bestselling Capital Ideas: The Improbable Origins of Modern Wall Street. He is the coeditor of Investment Management (Wiley), and was the first editor of The Journal of Portfolio Management.
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From Publisher
To what degree should we rely on our past to determine our future? This riveting book describes how the rational process of risk taking propelled the progress of science and enterprise into the modern world of speed, power, instant communication, and sophisticated finance. Risk management is now an indispensable skill whose applications range from allocating wealth through planning a family to wearing a seatbelt. Drawing upon history and biography to trace the development of its concepts, the author explains the origin of risk management - the basics of probability, sampling, regression to the mean, game theory, and rational versus irrational decision making. Bernstein introduces complex concepts via an accessible, entertaining narrative between the great minds behind the ideas. Against the Gods features the epic quests and questions of great thinkers such as Pascal, Fermat and von Neumann who have embarked on a reworkable adventure of intellectual discovery, proving that the future is more than just the whim of the gods, that men and women are not passive before nature.
(MSL remarks: This text refer to the Hardcover edition of this book)
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What is it that distinguishes the thousands of years of history from what we think of as modern times? The answer goes beyond the progress of science, technology, capitalism and democracy. The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk; the notion that the future is more than a whim of the Gods.
Gambling has held human beings in thrall for millennia. It has been engaged in everywhere, from the dregs of society to the most respectable circles.
Pontius Pilate's soldiers cast lots for Christ's robe as He suffered on the cross. The Roman Emperor Marcus Aurelius was regularly accompanied by his personal croupier. The Earl of Sandwich invented the snack that bears his name so that he could avoid leaving the gaming table in order to eat. George Washington hosted games in his tent during the American Revolution. Gambling is synonymous with the Wild West. And "Luck Be a Lady Tonight" is one of the most memorable numbers in Guys and Dolls, a musical about a compulsive gambler and his floating crap game.
The earliest-known form of gambling was a kind of dice game played with what was known as an astragalus, or knuckle-bone. This early ancestor of today's dice was a squarish bone taken from the ankles of sheep or deer, solid and without marrow, and so hard as to be virtually indestructible. Astragali have surfaced in archaeological digs in many parts of the world. Egyptian tomb paintings picture games played with astragali dating from 3500 BC, and Greek vases show young men tossing the bones into a circle. Although Egypt punished compulsive gamblers by forcing them to hone stones for the pyramids, excavations show that the pharoahs were not above using loaded dice in their own games. Craps, an American invention, derives from various dice games brought into Europe via the Crusades. Those games were generally referred to as "hazard", from al zahr, the Arabic word for dice.
Card games developed in Asia from ancient forms of fortune telling, but they did not become popular in Europe until the invention of printing. Cards originally were large and square, with no identifying figures or pips in the corners. Court cards were printed with only one head instead of double-headed, which meant that players often had to identify them from the feet - turning the cards around would reveal a holding of court cards. Square corners made cheating easy for players who could turn down a tiny part of the corner to identify cards in the deck later on. Double-headed court cards and cards with rounded corners came into use only in the nineteenth century.
Like craps, poker is an American variation on an older form - the game is only about 150 years old. David Hayano has described poker as "Secret ploys, monumental deceptions, calculated strategies, and fervent beliefs [with] deep, invisible structure... A game to experience rather than to observe." According to Hayano, about forty million Americans play poker regularly, all confident of their ability to outwit their opponents.
... We display risk aversion when we are offered a choice in one setting and then turn into risk seekers when we are offered the same choice in a different setting. We tend to ignore the common components of a problem and concentrate on each part in isolation - one reason why Markowitz’s prescription for portfolio building was so slow to find acceptance. We have trouble recognizing how much information is enough and how much is too much. We pay excessive attention to low probability events accompanied by high drama and overlook events that happen in routine fashion. We retreat costs and uncompensated losses differently, even though their impact on wealth is identical. We start out with a purely rational decision about how to manage our risks and then extrapolate from what may be only a run of good luck. As a result, we forget about regression to the mean, overstay our positions, and end up in trouble.
Here is a question that Kahneman and Tversky use to show how intuitive perceptions mislead us (MSL remarks: they are the people who first developed Prospect Theory). Ask yourself whether the letter K appears more often as the first or as the third letter of English words. You will probably answer that it appears more often as the first letter. Actually, K appears as the third letter twice as often. Why the error? We find it easier to recall words with a certain letter at the beginning than words with the same letter somewhere else.
The asymmetry between the way we make decisions involving gains and decisions involving losses is one of the most striking findings of Prospect Theory. It is also one of the most useful where significant sums are involved, most people will reject a fair gamble in favor of a certain gain - $100,000 certain is preferable to a 50-50 possibility of $200,000 or nothing. We are risk averse, in other words.
But what about losses? Kahneman and Tversky’s first paper on Prospect Theory, which appeared in 1979, describes an experiment showing that our choices between negative outcomes are minor images of our choices between positive outcomes. In one of their experiments they first asked the subjects to choose between an 80% chance of winning $40,000 and a 20% chance of winning nothing versus a 100% chance of receiving $3,000. Even though the risky choice has a higher mathematical expectation -$3,200 -80% of the subjects chose the $3,000 certain. These people were risk averse, just as Bernoulli would have predicted.
Then Kahneman and Tversky offered a choice between taking the risk of an 80% chance of losing $4,000 and a 20% chance of breaking even versus a 100% chance of losing $3,000. Now 92% of the respondents chose the gamble, even though its mathematical expectation of a loss of $3,200 was once again larger than the certain loss of $3,000. When the choice involves losses, we are risk seekers and are not risk averse.
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| View all 14 comments |
The New York Times (MSL quote), USA
<2006-12-25 00:00>
Ambitious and readable... an engaging introduction to the oddsmakers, whom Bernstein regards as true humanists helping to release mankind from the choke holds of superstition and fatalism. |
The Wall Street Journal (MSL quote), USA
<2006-12-25 00:00>
An extraordinarily entertaining and informative book. |
John Kenneth (Galbraith Professor of Economics Emeritus, Harvard University), USA
<2006-12-25 00:00>
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. |
Money (MSL quote), USA
<2006-12-25 00:00>
Fascinating... this challenging volume will help you understand the uncertainties that every investor must face. |
View all 14 comments |
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