Against the Gods

by Peter L. Bernstein

Cover image

Publisher: John Wiley & Sons
Copyright: 1996, 1998
ISBN: 0-471-29563-9
Format: Trade paperback
Pages: 337

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This is, unfortunately, not the book that I was hoping it would be. Since every book deserves readers who know what to expect going in and don't judge the book by something it's not, I'll start by helping you avoid my mistake. With a subtitle of The Remarkable Story of Risk, I was hoping this book would cover the history of risk management structures: joint-stock companies, mercantile trading companies, limited liability law, public corporations, equity and debt, and all the varied ways that capitalism has found to manage, limit, and profit from risk. I'm still looking for that book (recommendations welcome!).

Against the Gods is a different beast entirely: a popular history of statistics and probability, or more accurately, of the people who developed statistics and probability, that turns into a discussion of stock market portfolio strategies (not, thankfully, from a self-help investment angle). It opens with a history of gambling and numbers, tours major developments in western mathematical knowledge of statistics and probability theory, and then moves into such concepts as regression to the mean. While it introduces the stock market, particularly from the direction of attempting to predict its actions and determine whether it can be usefully analyzed with normal curves and similar standard probability, there's almost nothing here about legal structures or even about economic ones except at a fairly low level where they relate to risk analysis and game theory.

This is a generally competent and readable treatment of its intended topic, and I have no major complaints with it on its own terms. The biggest drawback of it for me, apart from not being the book that I wanted, is that much of it duplicates other, better works. Bernstein is not a bad writer, but his history of mathematics is neither as compelling nor as engrossing as Marcus du Sautoy's The Music of the Primes. (And while one might expect a book on the Riemann Hypothesis to have little in common with a history of statistics, it turns out that most of the historical leading lights in mathematics did a little bit of everything, so the same names and the same stories turn up.) His discussion of analysis and presentation of data lacks something compared to the exceptional work of Edward R. Tufte (The Visual Display of Quantitative Information being the place to start). I was nodding along to the discussion of game theory and cognitive biases both from a decision-making course from The Teaching Company I'd just listened to and from Nassim Nicholas Taleb's far more entertaining Fooled by Randomness. Bernstein is probably more balanced, but Taleb is much better at intellectual fireworks.

Now if, unlike me, you've not already read all those books and don't have them handy in your shelves, there's nothing fundamentally wrong with Against the Gods. It might be convenient to have the material in one place in a solid overview. But I'm afraid I never found it inspiring or felt moved to recommend it over better treatments of its individual components.

I found the second half of this book far more worthwhile than the first half, probably because I've read rather a lot of histories of mathematics and found bits like Bernstein's discussion of the earth-shattering ramifications of Arabic numerals to be a touch tedious. Around the point that he started talking about stock market predictions and portfolio management at page 172, I became much more interested. One of the few truly new pieces of information for me was the discussion of the fundamental shift in relationship between stock and bond prices that happened in the 1959, a fundamental failure to regress to the mean that shifted the basis of market analysis going forward and was not predictable in the light of past events (a black swan, to use Taleb's term). He continues with solid presentations of of portfolio management, diversification, failure to outperform index funds, prospect theory, and similar interesting bits about modern economics, particularly focusing on investments. If the entire book had been devoted to the material in the final half, I would have taken to it more.

This is not a bad book, and I won't warn people away from it. The second half has more to recommend it than the first; there at least, other than Taleb, I don't have other recommendations that cover the same material with more flair. But as is often the case with best-selling popular treatments, even in the modern stock market sections, I came away with the nagging feeling that someone else has probably covered the same material better. If you're well-read in economics and mathematics, you probably won't learn much from Against the Gods you didn't already know.

Rating: 6 out of 10

Reviewed: 2010-03-20

Last modified and spun 2014-12-21