Today’s book review is Against the Gods – the Remarkable Story of Risk by Peter L Bernstein. I bought this a while ago, when it was first published, and for some reason didn’t finish at the time. I couldn’t believe it when I read it again recently, as (unusually for a non-fiction book) I kept reading it in bed until my eyes were drooping.
This time, I enjoyed it. It is a book about the history of managing risk in a financial, quantitative sense, which meant that I had studied most of the mathematical theories in the book, and still use quite a few of them in my day to day work. It also validates the usefulness of managing risk in today’s financial system; if we didn’t have very sophisticated ways of managing risk, we would probably allocate capital to foolhardy ventures, and the world of today wouldn’t be as well off.
Of course, the byproduct of all those clever ways of managing risk is the big swinging dicks of the financial markets and the sometimes stupidly big swings in financial markets, but I am firmly convinced that on balance, the world benefits.
The thing I find interesting, on reflection, is that for a book about risk, it is very obsessed with the quantification of risk. That’s a weakness I share – I tend to think that if you can’t quantify it, it’s not worth thinking about. The book talks a bit about trying to quantify the risks of weather events and other natural disasters, but terrorism, stupidity, fraud, and other man-made disasters (think the National Australia Bank’s recent foreign exchange losses) are less quantifiable, and hence don’t get much time in the book.
It’s very much a heroic book of the “great march of human progress” mold. But for all that you can poke holes in its coverage, and its idealisation of the financial markets, it is immensely readable, and covers a broad sweep of history, particularly economic history, in a way I haven’t seen done before or since.