Against the Gods the Remarkable Story of Risk-Analysis - Book Report/Review Example

Against the Gods: the remarkable story of risk-analysis In his book ‘against the gods: the remarkable story of risk’, Peter Bernstein argues that capitalism originated from the mathematics of chance or risk (Bernstein 1).Bernstein has authored six books on economics and finance and is the head of a consultation firm for institutional investors. His book provides a review and analysis on the concept of man’s continued effort to understand probability and risk. The author suggests that the study of risk began in ancient Greece and has continued up to the development of modern chaos theory.The book provides a historical perspective at the origin and development of the study of risk management. His main argument is that the study of risk has underlined everything in modern day life from bridge-building, to game theory to wine making. Bernstein’s book is divided into five time sections through which the story of risk gets discussed. The five time periods discussed in the book are; 1200, 1200-1700, 1700-1900, and 1900-1960 (Bernstein 6). The first eight chapters of the book discuss the time periods from 1200 to 1900. Through the first eight chapters, the author discusses famous names such as Fibonacci, Cardano, Pacioli, Graunt, Petty, Pascal, Chevalier, and Fermat. In ancient Greece, man believed that the gods were responsible for future actions that determined the course of life (Bernstein 11). However, this all changed when thinkers, merchants, mathematicians and philosophers observed that the study of simple children’s games could produce great lessons in relation to financial decision making. Through this observation, people observed that they could learn how to control their own fate by evaluating risks and taking steps to prevent it. The pre 1200’s represented a time when people tried to formulate and understand numbers (Bernstein 23). Fibonacci provided the first treatment of risk theory when he wrote a letter discussing the applications of various perspectives of numbers. The period 1200-1700 represented the outstanding facts era. This era was graced by the contributions of Pacioli, Cardano, and the works of three Frenchmen. Pacioli gets described as the first historian in human history and the first to provide an exhaustive dealing on accounting through his book ‘Summa’ (Bernstein 40). His book provided tables on multiplication operations. As a gambler Cardano was always interested in developing a cluster of rules for playing gambling games where the outcome of a game could get based on odds. His book on games of chance appeared to evoke the first effort on ascertaining the principles of probability (Bernstein 42). The era 1200-1700 also saw the works of three French personalities in the development of probability theory (Bernstein 57).Blaise Pascal work on cones and Fermart’ work on theory of number during this era contributed to the conception of probability theory.The third was Chevalier De Mere who was interested in gambling and math and developed the ‘old problem of balla’.Communications between Fermart and Pascal resulted in the creation of the Pascal triangle used in solving the problem of balla.The triangle also got used in the summary of events that appeared to happen in a probable sense. The period 1700-1900 saw the start of estimation of uncertain events. Bernstein titles this period as ‘measurement unlimited’. The author introduces the reader to the Bernoulli family whose descendants contributed immensely in the understanding of uncertainty (Bernstein 101).David Bernoulli gets credited for introducing the idea of a risk taker in the whole concept of risk. His contribution gave birth to the concept of utility in risk management principles. Other important contributors in this era included De moivre who came up with the normal distribution curve. The other important personality during this period was Gauss who developed the central limit theorem which marked the single most vital theorem in statistics (Bernstein 129). The era also saw the work of Francis Galton who contributed to statistics by developing the regression mean. Bernstein’s book does well to provide a historical perspective of financial risk management. The author chronologically narrates the origin and development of risk management from the ancient to present times in the first eight chapters of the book. He chronologically details the conception of risk management through the different time eras he pot rays. He grasps the reader by detailing the stories of early thinkers and philosophers with their various contributions to the study of risk. His style of writing in the first eight chapters keeps the reader entertained and at the same time informed. This makes the book exciting and captivating from a historical perspective.The first eight chapters of the book provide accurate details in conveying a picture to the reader on the conception of risk management.The author succeeds in his mission to portray the rise of rise management by employing a variety of different stories from different time periods. The book will, however, not fulfill the tastes of those readers who expect the author to delve into a complex technical analysis of risk management techniques and devices. The book does not provide a step by step guide on risk management, but rather it helps the reader to avoid past pitfalls in risk management. The book’s first eight chapters also draw the reader through a vast time period that can end up appearing confusing, complex, and difficult to memorize. Bernstein book is attractive, interesting, and amusing to those readers who want to understand the rise of risk management. He undertakes a historical perspective to explain t the reader how modern day life is built upon the understanding of the study of risk. The first eight chapters of his book provide the reader with different stories on the contributions of various great thinkers to the study of risk. Bernstein’s portrayal of the first eight chapters in his book further stimulate the reader to go an extra mile and finish reading the entire history of probability and statistics in the understanding of modern risk management applications. Works Cited Read More