Bernstein argues that this signaled the birth of the modern era, in which rational planning replaced mystics and numerologists.

Pascal and Fermat formulated the general rules for the calculation of probabilities, which was the first real step in the science of risk management, that is, recognizing that math rules could help to guide decisions about the future. This represented a revolution in our notion of fate, he says, as the future began to be regarded as something human beings could master and manipulate regardless of their birth station.įor the next 200 years, Bernstein reports, mathematicians attempted to measure, with rapidly evolving tools (both physical and conceptual), what they believed could be 'known' with certainty. useful to the rising merchant bourgoisie). The new guys studied dice and other games of chance as well as bookkeeping and the insurance industry (i.e. It began in the 16 th century, when Renaissance mathematicians turned their attention to Earth this was a major departure from the preoccupations of philosophers since antiquity, who had studied the motions of the planetary bodies as the only measurable regularities in nature. The result is a truly brilliant book.Īccording to Bernstein, our notion of risk occurred in 3 stages. As a financial advisor, Bernstein knows all about the former, which he can explain in layman terms to the latter. (Oct.This is a history of the notion of risk, which is written to please both math jocks (gearheads) and poets (their opposites). Bernstein also traces the development of business forecasting, game theory, insurance and derivatives, and surveys recent advances in risk forecasting made possible through chaos theory and by the development of neural networks.

Bernstein (Capital Ideas) animates his narrative with a colorful cast of risk-analyzers, including gambling addict Girolamo Cardano, 16th-century Italian physician to the Pope and John Maynard Keynes, whose concerns over economic uncertainty compelled him to recommend an active, interventionist role for government. The statistical sampling methods invented by dour Swiss scientist Jacob Bernoulli undergird diverse activities such as the testing of new drugs, stock-picking and wine tasting. Probability theory, pioneered by 17th-century French mathematicians Blaise Pascal and Pierre de Fermat, has made possible the design of great bridges, electric power utilities and insurance policies. Risk management, which assumes that future risks can be understood, measured and to some extent predicted, is the focus of this solid, thoroughgoing history.

The remarkable story of risk