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Against the Gods: The Remarkable Story of Risk – Peter L. Bernstein

8th January 2020
against the gods book cover


Against the Gods is a book about risk. It chronicles the development of the risk management system. The author tells the story of a group of thinkers whose vision revealed how to put the future at the service of the present.


Peter L. Bernstein was an American financial historian, economist and educator. He had experience of running wealth management firm and was the first editor of The Journal of Portfolio Management. He had received 3 major awards from CFA Institute. He passed away in 2009.


Against the Gods has an introduction and 19 chapters. The chapters are divided into 5 sections. The first section is To 1200: Beginnings and has 2 chapters. The second section is 1200 – 1700: A Thousand Outstanding Facts and contains 3 chapters. The next section is 1700 – 1900 and consists of 6 chapters. The fourth section is 1900 – 1960: Clouds of Vagueness and the Demand for Precision and is made up of 4 chapters. The final section is Degrees of Belief: Exploring Uncertainty and has 4 chapters.


This book is like a history of statistics, at least to me. The author starts with early gamblers in ancient Greece till the chaos theory. As this book was written in 1996, it does not include any theory proposed after that time. It is a history of the discovery of risk and probability.

A lot of theories are discussed in the book and I was overwhelmed. I thought this is an investment book but the first few sections deal mainly with the history. Nonetheless, it does lead to better understanding of why the past stayed the same for so long.

In the past, as humans had no means to know exactly what is going to happen tomorrow, it is easier to assume that the future will resemble the present than to admit that it may bring some unknown change. This viewpoint changed when people believe that they are to some degree free agents and this led to emergence of risk management. The development of risk management also coincided with the advancement in mathematics.

The ability to define what may happen in the future and to choose among alternatives lies at the heart of contemporary societies. No one takes a risk with the expectation that his endeavor will fail. But can we really control risk as some theories suggest?

The theories are mostly developed from controlled environment but will they hold in the reality where the events are connected and dependent on one another? I think the answer is no.

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. Thus, it is impossible to totally eliminate risk.

Although I said that this book resembles a history book, it does teach me something about investment. I will share some below.

1. Investors must expect to lose occasionally on the risks they take. No one can win forever. So, manage risk so that the winnings are larger than losses.

2. Loss-aversion combined with ego leads investors to gamble by clinging to their mistakes in the fond hope that some day they market will vindicate their judgment and make them whole. Once an investment has been proven wrong, it is better to cut loss than hold on to it.

3. Diversification is important but it is both inadequate as a risk management technique and too primitive for the new environment of volatility and uncertainty. Nonetheless, I am not sure if there is any other way.

I wonder if you have heard about reversion to mean? Does it really work all the time? The author points out that dependence on reversion to mean for forecasting the future tends to be perilous when the mean itself is in flux, like in investment. The mean does not stay in one place. So, the trick is to be flexible enough to recognize that regression to the mean is only a tool; it is not a religion with immutable dogma and ceremonies. Remember the mean itself may also fluctuate.

One other thing that this book reminds me is that the utility resulting from any small increase in wealth will be inversely proportionate to the quantity of goods previously possessed. It means that if we are already very wealthy, we would not feel much if our wealth increases slightly. Maybe this is the reason why happiness stop increasing with the rise in income after a certain threshold.

Overall, I consider this book to be quite heavy. However, it can be a good read if you have the patience to go through all the pages.


  1. Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk.
  2. Risk is a choice rather than a fate.
  3. Diversification is not a guarantee against loss, only against losing everything at once.
  4. Likeness to truth is not the same as truth.
  5. Invoking luck obscures truth, because it separates an event from its cause.


2 out of 3 stars

Interested in Against the Gods?

You may get the book from The Book Depository (free delivery worldwide) through the link below*.

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