"Read this book!!" said the note from Ted Aronson, managing partner of Aronson + Partners, accompanying a book. Ted added he suspected the author's name would get my attention.
He was right. I needed no exhortation to read the book when I saw the name of the author, Peter L. Bernstein, because I thoroughly enjoyed Peter's previous book: "Capital Ideas: The Improbable Origins of Modern Wall Street." And in fact, I enjoyed the new book: "Against the Gods: The Remarkable Story of Risk" (John Wiley & Sons Inc., New York), even more than I did "Capital Ideas."
Both books are gracefully written. Both are seeded with wonderful real people captured with deft strokes of the pen. Both deal with great ideas and wonderful discoveries. Both entertain and educate. But there is something even more satisfying about "Against the Gods" than "Capital Ideas." It might simply be that I was more familiar with the ideas and people Peter wrote about in "Capital Ideas" than with those in "Against the Gods," so there is a greater sense of wonder, and fulfillment from learning, in reading the latter.
But it also might be the broader sweep of history, the more varied range of characters, the more basic ideas.
We all confront risk and uncertainty in our daily lives. We attach probabilities to possible outcomes many times each day, usually without noticing we are doing so.
Before the advent of modern capital market theory and measures of risk flowing from it - beta, standard deviation, etc. - investors nevertheless acknowledged risk and adapted to it by diversifying their portfolios. If they were unconcerned about risk, Harry Markowitz once said, they would each have held only one stock in their portfolios - that which they expected to produce the highest return.
But as Peter Bernstein notes in "Against the Gods," this is a modern phenomenon. Two thousand years ago no one made even subjective judgments about possible outcomes because people believed the future was controlled by the gods. Hence the title of the book. The ancients did not realize the past was often prologue to the future. The evidence was often there before their eyes, but they failed to see it.
The book tells the story of the Arab mathematicians; the Persian poet; the son of an Italian diplomat; the gambler; the French religious; the British merchant of "notions," i.e., needles and threads; the British astronomer and others who advanced the concepts of risk and probability, who discovered the concepts of algebra, numbers theory, utility theory, decision theory, statistical sampling, normal distribution, etc.
The book is replete with intriguing history. The word "algorithm" is a corruption of the name of the author of the first known work in Arabic arithmetic, a mathematician by the name of al-Khowarizmi. The Persian poet Omar Khayyam, who wrote the "Rubaiyat," also was a mathematician whose work eventually led others to algebra. While you are absorbing this history, you are being led painlessly through the concepts of risk and how they are used today. You are being educated.
So I echo Ted Aronson: Read this book! It will be a classic.
