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Editor’s Note: Welcome to the 16th review in our Get Paid to Read contest series! Last week, we featured William Somers’s take on One Up On Wall Street by Peter Lynch, and it’s worth a read.
Quick update: My new book, The Event-Driven Edge in Investing, is now available! If you’re interested, you can check it out on my publisher’s website here or grab a copy on Amazon here.
You can explore the rest of the reviews we’ve published in our Reading List section.
This week, we’re excited to share Tom Vouvoudakis’ review of Against the Gods by Peter L. Bernstein. It’s an intriguing look at risk and its impact on finance. When exchanging emails with him he made the following insightful comment, which I am sharing with his permission:
Hope show runners at Netflix or apple TV read this book and make a movie on Blaise Pascal. It was wild how he made so much progress in making sense of the world and then wildly turned towards religion, like he realized he opened pandora’s box.
Tom is an experienced Insurance Broker with 15 years of expertise in underwriting and risk assessment.
“Against the Gods: The Remarkable Story of Risk” by Peter L. Bernstein unifies various historical facts under the theme of risk management. The book explains how the understanding and prediction of uncertainty evolved from ancient beliefs in divine whims to modern mathematics. It covers how choice and quantification permeate our lives, from sports betting to insurance rates, and how these tools underpin the modern economy.
The author provides a chronological account of key figures who contributed to this evolution, from ancient Greeks asking “why?” and emphasizing proof, to the introduction of the Hindu-Arabic numbering system and its analysis by Fibonacci in his monumental book Liber Abaci, where he discovered the Golden Ratio and its natural occurrences in nature. Gerolamo Cardano’s early work discussed the concepts of probability in the context of gambling, providing insights into the mathematics of dice games and introducing ideas that would later form the foundation of probability theory.
Contributions from Blaise Pascal and Pierre de Fermat built upon Luca Pacioli’s brain teaser known as ‘the problem of the points’, bringing us to the threshold of quantifying risk.
The narrative continues in Against the Gods with significant advancements by Dutch mathematician Christiaan Huygens (1629-1695) who introduced the concept of expected value. English statistician John Graunt (1620-1674) used mortality data to create demography and epidemiology. Two generations of the Bernoulli family brought us the law of large numbers and the concepts of conjecture and utility. French mathematician Abraham de Moivre (1667-1754) formulated the normal distribution and standard deviation.
Belgian statistician Adolphe Quetelet (1796-1874) applied statistical methods to social sciences. English polymath Francis Galton (1822-1911) developed regression analysis and correlation. French mathematician Henri Poincaré (1854-1912) contributed to chaos theory. French mathematician Louis Bachelier (1870-1946) developed the theory of speculation and the groundwork for modern financial mathematics.
Modern developments are attributed to John Maynard Keynes and Frank Knight’s distinction between risk and uncertainty, Harold Hotelling’s hypothesis testing, John von Neumann’s game theory, Harry Markowitz’s portfolio theory, and William F. Sharpe’s Capital Asset Pricing Model (CAPM).
Bernstein’s Against the Gods illustrates the fundamentals of risk management, as the concepts apply across various subjects like insurance, finance, and public policy. The global effort that spanned thousands of years continues today, with pending breakthroughs in quantum computing and artificial intelligence on the horizon.