Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein
My rating: 4 of 5 stars
One problem with the teaching of math and statistics as practiced in the U.S. is that it often seems like a series of topics that are sprung out of whole cloth with no context. Against the Gods has two parts: a history of how views of risk developed within western civilization and then a examination of the tools and (mis)use of risk managements in modern finance. In doing so it paints a picture of not only what the principles of probability and risk management are, but why they were developed and how they are used (and misused).
I had assigned this book as part of a course in decision analysis within an engineering department to a mix of upperclassmen and graduate students. Most found the first have to be fairly uninteresting. But the payoff came later as Bernstein tracked the growth of the development of probability to its application in insurance then to financial instruments in general By the end of the book we were discussing the purpose of modern financial instruments in terms of risk management using both modern examples and the 15th century patrons of renaissance explorers. And seeing how not understanding the principles and purposes behind the techniques leads to trouble, many of my students said the book gave a greater appreciation for the probability and statistics they have been learning.
And a gratifying note, in their report, many of the students stated that they did not read outside of their technical books, but after this experience they developed an appreciation for non-fiction and planned on looking for more such books to read in the years to come.
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