A Business Week, New York Times Business, and USA Today Bestseller"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 New York Times"An extraordinarily entertaining and informative book."—The Wall Street Journal"A lively panoramic book . . . Against the Gods sets up an ambitious premise and then delivers on it."—Business Week"Deserves to be, and surely will be, widely read."—The Economist"[A] challenging book, one that may change forever the way people think about the world."—Worth"No one else could have written a book of such central importance with so much charm and excitement."—Robert Heilbroner author, The Worldly Philosophers"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."—John Kenneth Galbraith Professor of Economics Emeritus, Harvard UniversityIn this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today."An extremely readable history of risk."—Barron's"Fascinating . . . this challenging volume will help you understand the uncertainties that every investor must face."—Money"A singular achievement."—Times Literary Supplement"There's a growing market for savants who can render the recondite intelligibly-witness Stephen Jay Gould (natural history), Oliver Sacks (disease), Richard Dawkins (heredity), James Gleick (physics), Paul Krugman (economics)-and Bernstein would mingle well in their company."—The Australian
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About the Author
PETER L. BERNSTEIN is President of Peter L. Bernstein, Inc., economic consultants to institutional investors. Mr. Bernstein is the author of six books in economics and finance, including the bestselling Capital Ideas: The Improbable Origins of Modern Wall Street, as well as many articles in the professional and popular press. He is the Editor of The Portable MBA in Investment (Wiley) and was the Founding Editor of The Journal of Portfolio Management.
Table of Contents
TO 1200: BEGINNINGS
1. The Winds of the Greeks and the Roleof the Dice 11
2. As Easy as I, II, III 23
1200–1700: A THOUSAND OUTSTANDING FACTS
3. The Renaissance Gambler 39
4. The French Connection 57
5. The Remarkable Notions of the Remarkable Notions Man 73
1700–1900: MEASUREMENT UNLIMITED
6. Considering the Nature of Man 99
7. The Search for Moral Certainty 116
8. The Supreme Law of Unreason 135
9. The Man with the Sprained Brain 152
10. Peapods and Perils 172
11. The Fabric of Felicity 187
1900–1960: CLOUDS OF VAGUENESS AND THE DEMAND FOR PRECISION
12. The Measure of Our Ignorance 197
13. The Radically Distinct Notion 215
14. The Man Who Counted Everything Except Calories 231
15. The Strange Case of the Anonymous Stockbroker 247
DEGREES OF BELIEF:EXPLORING UNCERTAINTY
16. The Failure of Invariance 269
17. The Theory Police 284
18. The Fantastic System of Side Bets 304
19. Awaiting the Wildness 329
Name Index 365
Subject Index 369
What People are Saying About This
"A fascinating and unusual perspective on modern man's Promethean attempt to master risk. The book reads easily and provokes thought--a rare combination."Editor and Publisher, The Weekly Standard
"In Against the Gods, Peter Bernstein, a scholar, historian, and successful investor gives us the history of great thinkers whose visions put the future at the service of the present."Managing Director, Marc Faber Limited, Hong Kong
"Peter Bernstein leads us effortlessly through the history of risk because he writes so beautifully. This is a book on a left brain subject that will have right brain readers lining up for more!"Managing Director, Bankers Trust Australia Limited
This looks like a new classic to me."Chairman Morgan Stanley Asset Management, Inc.
"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."Professor of Economics Emeritus, Harvard University
Exclusive Author Essay
Finance: What Is It, Why Is It, and Where Is It? by Peter L. Bernstein
Finance is a small word, but it covers a huge territory that includes markets, banking, corporate finance, the art of forecasting, accounting, taxation -- and more. In this universe, financial markets are the sun, a dazzling creation around which all the other activities rotate. I set the scene in this short essay, therefore, with some observations about markets before turning to the rest of the subject.
What is that frenzied activity in financial markets all about? Markets are places where buyers and sellers come together to do business; financial markets deal in money and risk. Financial markets are in the first instance a vehicle for financing governments and enterprises that need money. Beyond that, financial markets are a place where owners of outstanding assets can convert those assets into cash, or where owners of cash can find longer-term uses for their money. Financial markets thus give holders of assets with future cash flows the option of realizing the discounted value of those future cash flows in the present. In short, financial markets give investors the opportunity to change their minds, to reverse earlier decisions, at a cost and with a degree of immediacy that direct investment cannot provide. Think of the difference between buying 1,000 shares of IBM for a client and a house for your family.
Reversibility of decisions is the key element in risk. The reversibility provided by financial markets is their most important attribute. Financial markets are a kind of time machine that allows investors to compress the future into the present. Without financial markets, all assets would be buy-and-hold. Financial markets also provide tradable assets that directly hedge risk, by performing the remarkable function -- similar to insurance -- of reducing the holder's dependence on the markets to reverse decisions that might turn out unfavorably. Along the way, financial markets provide divisibility of outstanding issues, which means that investors can reduce risk even further through the invaluable device of diversification.
Through all these methods of reducing the risk of owning assets, financial markets lower the cost of capital and stimulate the spirit of enterprise. Recognizing these features of financial markets is essential to understanding the character of the risks and required returns of nonmarket sources of finance, such as banking, direct investment, and venture capital.
The impact of time on finance is not limited to markets. Time and finance are only opposite sides of the same coin. Finance means that those without cash can obtain cash today instead of waiting until tomorrow or the next day or the next. Thus, time is at the core of all aspects of finance, whether the transaction is in tradable or illiquid assets and whether it involves the sale of newly created financial assets or outstanding issues.
Finance is a service. We cannot touch, smell, or test-drive the next transaction we undertake. As a result, finance cannot operate without trust. Accounting, law, and regulation are indispensable features of a successful financial system. They come first. Finally, because finance is so involved with time, finance is about the future. This means that the study of finance must include techniques of forecasting combined with the valuation of future cash flows. But the future is unknown. So we also require the whole methodology of risk management for those occasions when forecasts turn out to be wrong.
The field is challenging, exciting in its development, and a place to make a fortune -- but also intensely competitive. It is also a fast-moving business: Like many other areas of our economy today, finance seems to be hit by innovation piled on innovation with extraordinary speed. You either keep in step or fall by the wayside. The work of academics and theoreticians in finance is now so closely joined to the efforts of practitioners that continuing education is essential for success.
Studying the literature cannot assure us of getting rich, but ignoring what the experts have to tell us has a high probability of dooming us to failure.
Most Helpful Customer Reviews
This work is a minor classic of financial literature. Business historian Peter L. Bernstein wrote it during the early 1990s, when faith in the power of quantitative models and financial engineering was at its apex, and he tells a heroic story. Beginning with Greek mythology, Bernstein shows how cultural ideas about risk and probability evolved through Arab mathematics, the European Enlightenment and Chicago School economics. He writes in a spare, straightforward style, and manages to convey the essentials of financial theory and the essences of great economists without losing the reader in a maze of equations. Of course, the 2008 financial crisis cast probabilistic models and financial engineering as global market villains. In retrospect, that makes Bernstein's evident admiration for those models seem rather touchingly ingenuous. Nonetheless, getAbstract finds that this is still one of the best popular introductions to the development of financial science.
one of the best investing books ever written. whether you are a novice or a pro this book should be in everyones top 5 investor books. Fantastic overview of the overwhelming complexity of todays markets. Allows one to understand risk and how it relates to the our everyday lives pertaining to money. Mr. Bernstein lays it out very clearly what your odds are playing the stock market.
Bernstein strikes again - even better than his history of gold. Great stuff.
Before plunking any money into any investment, read this book first. It may seem more of a chronology of probability and statistics at first, but stick with it. More importantly, this book will help you understand risk so you go into investments with both eyes open. This book would be a 'must-read' even if it did not venture into applications to the stock market. It is well researched and written.
A great read... much more provocative and satisfying than some of the Longitude-style attempts at reasssessing big history. Bernstein looks at society and the growth of modern capitalism using the lode stone of risk, mixing math and history in an extraordinarily original way.