Against the Gods: The Remarkable Story of Risk

Viewpoint Investment Partners Managing Partner, Scott Smith, has recently finished the book Against the Gods: The Remarkable Story of Risk by Peter Bernstein. For those interested in the historical underpinnings of probability and the measurement of risk, this book is a captivating read. Traversing from quantifying the probability of certain numbers appearing in a dice game to the study of behavioural economics, Bernstein takes the reader on an historical journey through quantifying uncertainty. The evolution from describing chance to establishing risk management principles is fascinating, given that probability and uncertainty are not one in the same. As stated by Bernstein, “the essence of risk management lies in maximizing the areas where we have some control over the outcome, while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.” Much of the history on quantifying chance fails to take into consideration human behaviour, but the study of how human beings make choices and respond to risk is the new frontier for the study of risk management. While the book was first published before the tech bubble in the 2000s and the financial crisis of 2008, its underlying principles still ring true to this day.