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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Against the Gods: The Remarkable Story of Risk
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Reviews with images
Excellent high level read.
I'm far from an economist but I have to say this was a very good read. I finished it must faster than I expected.
Top reviews from other countries
Hector Sanguino
Muy recomendable. Da una clara y entretenida reseña histórica de la medición del riesgos.
Reviewed in Mexico on December 27, 2023
Actis Guido
PER ENTRARE IN CONTATTO CON IL NOSTRO DESIDERIO INCONSCIO DI DIVINITA'
Reviewed in Italy on August 16, 2022Amit Ghosh
Risk if Managed carefully, is fruitful
Reviewed in India on January 4, 2022