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

1 The Winds of the Greeks and the Role of the Dice

W-hy is the mastery of risk such a uniquely modern concept?
Why did humanity wait the many thousands of years leading up to the
Renaissance before breaking down the barriers that stood in the way of
measuring and controlling risk?
These questions defy easy answers. But we begin with a clue. Since the
beginning of recorded history, gambling-the very essence of risktaking-has
been a popular pastime and often an addiction. It was a game of chance that
inspired Pascal and Fermat's revolutionary breakthrough into the laws of
probability, not some profound question about the nature of capitalism or
visions of the future. Yet until that moment, throughout history, people had
wagered and played games without using any system of odds that
determines winnings and losings today. The act of risk-taking floated free,
untrammeled by the theory of risk management.
Human beings have always been infatuated with gambling because it puts
us head-to-head against the fates, with no holds barred. We enter this
daunting battle because we are convinced that we have a powerful ally:
Lady Luck will interpose herself between us and the fates (or the odds) to
bring victory to our side. Adam Smith, a masterful student of human nature,
defined the motivation: "The overweening conceit which the greater part of
men have of their own abilities [and] their absurd presumption in their own
good fortune."' Although Smith was keenly aware that the human
propensity to take risk propelled economic progress, he feared that society
would suffer when that propensity ran amuck. So he was careful to balance
moral sentiments against the benefits of a free market. A hundred and sixty
years later, another great English economist, John Maynard Keynes, agreed:
"When the capital development of a country becomes the by-product of the
activities of a casino, the job is likely to be ill-done."

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