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21 of 22 people found the following review helpful
5.0 out of 5 stars Everything is a risk
Are you a private investor looking for handy tips on hot stocks? Good luck, but this might not be for you. You won't find get-rick-quick advice in this scholarly work, but you might learn why you're drawn to actively managed funds despite their history of market underperformance. You'll also be enriched by the stories and depth of research here. Another reviewer objects...
Published on 3 July 2003 by Owen Gard

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98 of 102 people found the following review helpful
3.0 out of 5 stars Spins a good yarn
This is full of highly entertaining anecdotes, pithy quotations and useful snippets of knowledge which add up to a cogent argument only by making some outrageously sweeping assumptions.
It is difficult to argue with the excellent summary of risk management during the course of this century, and anyone looking for a thought-provoking introduction to Markowitz and...
Published on 19 April 1999


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98 of 102 people found the following review helpful
3.0 out of 5 stars Spins a good yarn, 19 April 1999
By A Customer
This is full of highly entertaining anecdotes, pithy quotations and useful snippets of knowledge which add up to a cogent argument only by making some outrageously sweeping assumptions.
It is difficult to argue with the excellent summary of risk management during the course of this century, and anyone looking for a thought-provoking introduction to Markowitz and all that need look no further.
However, to get there you need to get past a broad swipe at the History of Ideas which attempts to show you how clever we are compared to the ancients. The author's basic premise is that in The Olden Days when we were unable to accurately measure risk, people cheerfully put their faith in the lap of the gods, blindly setting to sea during storms, building their houses next to flood-prone rivers, all the while serenely unaware of how the odds stacked up against them. Then, as we became increasingly aware of the beauty of zeroes, Arabic numerals and standard deviation, we were increasingly able to measure what was going on and therefore control it. Well, that assumes that you cannot control risk without first being able to accurately measure it. I just don't believe that the Greeks never spotted that their unevenly-shaped dice fell more often on one side than the other - kids in playgrounds spot that kind of thing easily. I also rubbed my eyes in disbelief at the idea that the period of Columbus was the first time in history that wealth was created by mutually beneficial trade, rather than by conquest and pillage - is this a commonly held belief? And while we're being pedantic, Pascal's Pensées are not his "autobiography", nor is it safe to make assumptions that the fragments in them are all expressions of his own beliefs.
Nevertheless, an enjoyable read that is satisfyingly thought-provoking.
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21 of 22 people found the following review helpful
5.0 out of 5 stars Everything is a risk, 3 July 2003
Are you a private investor looking for handy tips on hot stocks? Good luck, but this might not be for you. You won't find get-rick-quick advice in this scholarly work, but you might learn why you're drawn to actively managed funds despite their history of market underperformance. You'll also be enriched by the stories and depth of research here. Another reviewer objects that Bernstein credits the Greek mathematicians with less understanding of probability than a school child. It seemed to me that Bernstein is saying something different: Even if Socrates had a private opinion about the frequency of VI on an astragali roll it wasn't a respectable part of his intellectual framework. He might of known it, but he refused to study it.
The author clearly considers his subject the most important in history, and in 330 pages identifies every significant step in the development of *thinking about* risk. In some ways though, the focus is too narrow. It becomes clear towards the end of the book that he has been building up the strands of probability theory as precursors to the 'taming of risk' in modern financial theory. I was hoping that an ambitious work on the history of probability would include the discovery that all of reality is based on chance, but you can search the index for 'Quantum Mechanics' in vain. (However 'Quant' is there - Bernstein himself was once a financial mathematician.)
In a subject as huge as risk there will always be more to say, and what is included here makes a cohesive whole whilst being important or interesting in it parts. Ok, maybe you don't love chance as much as me - what you need to know about portfolio theory is in Chapter 12 onwards - you'll still have 140 pages of important results. It's even topical, Kahneman's Prospect Theory is covered in detail (and he won the Nobel last year).
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9 of 9 people found the following review helpful
1.0 out of 5 stars Woeful! But a good insight into the mentality of pre-crash neoliberal economists, 21 Nov 2013
You might think from the title that you are getting a sweeping story of risk from ancient games of dice through renaissance ideas of probability through to modern ideas of risk management in all areas of life, and the opening chapters also give that impression.

You get good little potted histories of several mathematicians at the start, and you tend to forgive his naive attempts to explain away historical attitudes to risk even though he seems to be embarking on a historical journey.

Then he starts getting onto the real mathematics. Bernstein is clearly one of those people who think "it's better that I'm not an expert in this as it will make me more able to explain it to a lay audience". Peter, Peter, Peter... you can't explain something if you don't understand it. Bernstein is all at sea from the moment he references the earliest and simplest writings on probability and risk, but when it comes to more subtle stuff he is terrible. For example, he is happy to go on and on about the normal distribution when he clearly does not understand what produces a normal distribution and when and where it is applicable, and then later he goes on at even greater length about regression to the mean, which he fundamentally does not understand either.

This book contains numerous boring digressions including his own tedious and naive numerical experiment, some of his irrelevant experiences in investing, and a foggily-understood political hobby horse.

Eventually you slog through to what this book is really about. He believed that risk had been banished from the stock markets. He has a good few examples that demonstrate palpably that this is not the case, and yet he fails to come to his own conclusion; no - risk is dead. Long live everlasting prosperity!

So then you understand what the earlier part is about. Little potted histories of great men of mathematics and science, poorly argued historical arguments, dimly understood mathematics, the silent dropping from the story of risk management in the areas of medicine, social policy, foreign policy, business and everything else that isn't finance; it's all an attempt to lend the weight of history to this (with hindsight clearly bizarre) conclusion.

And so now we know the truth! This book (apparently Bill Clinton was a fan) and the sort of thinking it contains is part of the cocksure mindset of neoliberal economists who drove the western world to and then off a financial cliff.

So read it if you want an insight into that mentality. Avoid if you actually want to know anything about risk.
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3 of 3 people found the following review helpful
5.0 out of 5 stars risk explained for poets and gear heads, 10 Jun 2011
By 
rob crawford "Rob Crawford" (Balmette Talloires, France) - See all my reviews
(TOP 1000 REVIEWER)   
This is a history of the notion of risk, which is written to please both math jocks (gearheads) and poets (their opposites). As a financial advisor, Bernstein knows all about the former, which he can explain in layman terms to the latter. The result is a truly brilliant book.

According to Bernstein, our notion of risk occured in 3 stages. It began in the 16th C, when Renaissance mathematicians turned their attention to Earth, a major departure from the preoccupations of philosophers since antiquity, who studied the motions of the planetary bodies as the only measurable regularities in nature. The new guys studied dice and other games of chance as well as bookkeeping and the insurance industry (i.e. useful to the rising bourgoisie). This represented a revolution in our notion of fate, he says, as the future was regarded more as something human beings could master and manipulate regardless of their birth station, etc.

FOr the next 200 years, Bernstein reports, mathematicians attempted to measure, with rapidly evolving tools (physical and conceptual), what they believed could be "known" with certainty. Pascal and Fermat formulated the general rules for the calculation of probabilities, which was the first real step in the science of risk management, that is, recognising that math rules could guide decisions about the future. Bernstein argues that this signalled the birth of the modern era, in which rational planning replaced mystics and numerologists.

This was the golden age of classical statistics. First, researchers examined what could be inferred of the whole from a limited number of observations (statistical inference, as in vote sampling today). Then, they turned their gaze to uncertainty, which they might estimate. This resulted in Bayes' theorem, which incorporates intuition into the equasion. THe bell curve was also discovered.

I found Bernstein's third stage the most interesting, i.e. post-WWI. This was a time when the confidence in Western rationalism came into question, not only whether we operate logically but if we even come to the right conclusions when armed with the "required" information. At this time, the science of risk breaks into a number of competing schools, whose arguments are mutually exclusive, including game theory.

FInally, Bernstein offers up some surprisingly skeptical financial advice. Investment professionals, we learn, rarely do consistently better than random choices (!) and if they develop a system that works, it will quickly become obsolete because others will copy it.

This book is an extremely useful review of the complicated, sometimes arcane techniques that many of us sweated through during late nights a grad student toil. I hated every minute of it, but in Bernstein's hands it is indeed facsinating and written with a remarkable clarity. Berstein makes a lively case for the judicious use of this risk-analysis techniques - we should take them into account even if we fail to follow them rationally. His book is a useful primer for investor caution, i.e. quantitative techniques are useful but should be questioned continually. There are also innumerable fascinating asides, in which personal details of the mathematicians are examined with humor and psychological depth.

Warmly recommended.
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3 of 3 people found the following review helpful
5.0 out of 5 stars Lucid, accessible history of risk management, 19 May 2009
By 
Rolf Dobelli "getAbstract" (Switzerland) - See all my reviews
(TOP 500 REVIEWER)    (REAL NAME)   
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.
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2 of 2 people found the following review helpful
4.0 out of 5 stars Real world, virtual risk, 4 April 2010
By 
J. adams "John Adams" (London United Kingdom) - See all my reviews
(REAL NAME)   
Who dares wins. Bernstein puts the emphasis on winning: "higher risk should in time produce more wealth, but only for investors who can stand the heat."

The title of this book promises the story of risk. The story he tells, he tells very well, but it should be called a story of risk with significant omissions. The missing parts can best be described in terms of three categories of risk:
* directly perceived risk - climbing a tree, riding a bike, or driving a car to the channel tunnel,
* quantified risk - probabilistic estimates of failure, such as those made for new vaccines, bridges, or the reinforced concrete in the tunnel, and
* virtual risk - the scientists and statisticians don't know or cannot agree: the likelihood of a terrorist planting a bomb in the tunnel that will kill hundreds of people.

The management of the first category of risks has probably changed little since our ancestors climbed down from the trees. The particular dangers that we have to cope with are different - fierce animals have been replaced by cars. But we still respond to them intuitively in ways that have been programmed into us by evolution - we all duck if we see something about to hit us. The fact that, for this category, we are all risk managers, makes the official risk manager's job frustrating. If officaldom requires cars to be fitted with better brakes, we do not drive the same way as before and enjoy an extra margin of safety; we drive faster or start braking later. The potential safety benefit tends to get consumed as a performance benefit.

The management of virtual risks is guided by belief, conviction and superstition. These risks remain the realm of the gods. Like the computer programmer's virtual reality, they can be real - like those built into a simulator for training pilots - or completely imaginary - like space invaders. Virtual risks are products of the imagination that work upon the imagination. In the risk literature, such risks are usually labelled uncertainties. But we do not respond blankly to uncertainty; we impose meaning upon it - meaning that has no firm basis in science. And our responses continually change the world to which we are responding.

Whether associated with the stock market, global warming, mad cow disease, or the channel tunnel, virtual risks cannot be determined actuarially. They are inherently unknowable because they are the product of an infinitely reflexive regress. Investors, polluters, beef eaters, travellers, terrorists, and those responsible for security are all guessing about the responses of others, to their responses, to the responses of others ... At the time of writing it is not clear whether the recent fire in the channel tunnel was a result of accident or sabotage. But it is clear that Eurotunnel's estimate that a fire that will kill 50 or more people will occur only once in 600,000 years is fatuous . When fully operational, on a busy weekend the tunnel could have more than 10,000 people in it at any one time; and what will happen in the tunnel will be a result of people - employees, ordinary travellers, and terrorists - behaving in unpredictable ways in response to the behaviour of the tunnel operators who are, in turn, trying to guess what they will do.

Against the Gods does not address the first category of risk and, a more important weakness, blurs the boundary between quantified and virtual risks. It is essentially the story of the achievements of the risk quantifiers and their success in displacing the gods. In chapter 1 Bernstein elevates these achievements to a defining role in history:

"The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than the whim of the gods and that men and women are not passive before nature."

In his conclusion this mastery becomes the shaper of progress:

"The central theme of this whole story is that the quantitative achievements of the heroes we have met shaped the trajectory of progress over the past 450 years - [these heroes] have transformed the perception of risk from chance of loss into opportunity for gain, from FATE and ORIGINAL DESIGN to sophisticated probability-based forecasts of the future, from helplessness to choice."

Bernstein devotes considerable space to an inconclusive discussion of uncertainty. For coping with it he recommends the methods of his heroes: "under conditions of uncertainty, both rationality and measurement are essential to decision making." But it is advice without practical content. If we don't know, we don't know. Sophisticated probability-based forecasts of the future are only as reliable as the assumptions upon which they are based. They are useful only to the extent that the past is a reliable guide to future. Bernstein argues that his heroes - Pascal, Gauss, Galton and Arrow to name but a few - have enlarged the domain of risk under scientific management, and reduced the domain of the gods. But the uncertainty within which we all live our lives remains boundless. The heroes appear merely to have shrunk infinity.

Or perhaps enlarged it? Might the increased command of science and technology over nature be illusory? Might pharmacologists and genetic engineers be creating new problems faster than they are solving old ones? Might the development of new financial instruments like derivatives - that appear to be beyond the comprehension of most of those dealing in them - be turning up the heat in the investors' kitchen? Such questions have no agreed answers. They lie in the realm of virtual risk.
The fire in the channel tunnel that closed it for 6 months 6 moths after it opened provides a test of the achievements, extolled in Against the Gods, of the risk quantifiers. Eurotunnel's Safety Case is a 295 page testament to the state of the art of quantified risk assessment. It concludes "It has therefore been possible to perform a deterministic safety analysis of the system and to use the potential risks which have been identified as the basis for Quantified Risk Assessment." Although no one died, the physical damage, and the consequent disruption of the service, were not anticipated in this assessment.

All this said, Bernstein has written a fascinating book. Against the Gods is the most comprehensive history I have read of the attempt to bring the science of probability to bear on risk management - I abandoned my usual practice of bending over the corner of a page containing something quotable when I realised that I was about to double the thickness of the book. But, at its centre is an unresolved ambivalence; Bernstein is a risk enthusiast on the verge of losing his nerve. After more than 300 pages devoted to applauding the triumph of probability theory over the gods of ignorance and superstition, he closes with a quotation from Keynes quoting Locke: "God has afforded only the twilight, as I may say, of Probability, suitable, I presume, to that state of Mediocrity and Probationership He has been pleased to place us in here." It is an intriguing note on which to end a book devoted to the defence of hubris (the title of the book is a definition of hubris). Is it offered, one wonders, to propitiate Nemesis, who invariably punishes such presumption?
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7 of 8 people found the following review helpful
4.0 out of 5 stars A readable analysis of risk, 25 Dec 1998
By A Customer
There are few who could imagine being captivated by an examination of mathematical probability but I found this book held my attention all the way through. The author has an expansive knowledge of the subject and handles the material in a way that is both readable and enlightening
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33 of 40 people found the following review helpful
5.0 out of 5 stars A superb popularisation of a complex subject, 17 Dec 1999
By A Customer
Bernstein has managed to take a subject which at first sight seems intensely boring, and has made it fascinating.
Whether or not you have any interest in Risk, Statistics or Econimics, you owe it to yourself to read this book. It is quite simply a "Ripping Yarn". Its greatness lies in Bernstein's ability to tell the story in an accessible manner, without dumbing down the essential facts.
Let me say it again: Read this book because it is a fascinating and well written story. The fact you will know a lot more about Risk at the end of it is an incidental, but very welcome, extra.
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14 of 17 people found the following review helpful
4.0 out of 5 stars A thoroughly interesting insight into the analysis of risk., 13 May 1999
By A Customer
Although complex in places, this book is a must for the private investor who needs extra tuition on the effect of risk in modern investment theory. The book is thorough and the early parts take some concentration, but for the true investment theorists and statisticians, it makes for informative reading. The diaries of private investors and books that detail how Mr X got rich quickly are entertaining, but theoretical books are of much more benefit for anyone contemplating investing.
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18 of 22 people found the following review helpful
5.0 out of 5 stars Outstanding Book of Clarity and Depth., 14 Nov 2003
By A Customer
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There are books which the subject at hand could easily bore the lay person after the first chapter, however this is definetly not one of them. Shamefully, knowing little arithmetic(never mind maths), I was pleasantly ensnared in this feast of probability. It is written clearly and coherently and introduces the reader to a whole universe of number subjects which fascinated me from start to finish. From Pascals triangle to John Nash's work on game theory, I understood broadly, every concept the author introduced.
Whether you are a student of Maths or Philosophy,History or Science, a bookworm or an occassionite, this book is for you.
I highly recommend this masterpiece.
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