Against the Gods: The Remarkable Story of Risk

By Peter L. Bernstein

John Wiley & Sons

383 pp., $27.95

Hope for the future is a universal concept, perhaps the defining one for humankind. While most of us believe that time's arrow points in only one direction, it is a peculiarly modern arrogance that the future can be reduced to mathematics, quantified, and predicted.

In this ambitious book, Peter Bernstein, an economics professor turned investment counselor, chronicles the rise of this belief.

This work is really several different books in one. This is both the strength of the book and ultimately, its weakness. The author begins with a historical survey of probability theory from ancient times to the modern era.

He locates the origin of risk management theory in gambling. Gamblers may think they are betting on the odds, "but in reality they are betting on the clock.... Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk."

Bernstein is aware that there is a deeper philosophical question here. The ancient Greeks and Romans believed in Fortuna, the goddess of fate, whose whims ruled mortal affairs.

With the spread of Judeo-Christian thought to Western Europe, the moral outlook shifted: "the future of life on earth remained a mystery, but it was now prescribed by a power whose intentions and standards were clear to all who took the time to learn them."

The essential question remains: To what extent are human lives determined by Providence, and how much by our own free will? With the coming of the European Enlightenment, it was seriously argued for the first time that people could choose their own fate.

At the same time, the development of increasingly sophisticated mathematical techniques made it possible to compute the likelihood of a given outcome.

Probability theory as we know it arose during the Renaissance. It is easy to demonstrate (but hard to master) that there are regularities to be observed in repeated throws of the dice.

An Italian physician, mathematician, and oft-times gambler named Girolamo Cardano was the first to set down the rules of probability in 1545. Cardano introduced the concept of statistics to measure the relative likelihood of chance events.

From the 16th century on, the mathematical study of gambling has been inextricably bound up with the interests of those who challenge the odds at dice or cards.

With these concepts in place, Bernstein turns in the latter part of the book to the connection between risk-taking and economics, in particular to marketing and investment.

His focus changes from mathematics and philosophy to a subject that seems closer to the author's heart. As an economist, Bernstein is intrigued by the deeper scientific and philosophical questions, but what really communicates is his enthusiasm for the play of vast sums of money.

A related problem with the book is Bernstein's omission of much of the modern theories on the effects of chaos and complexity in human interactions. While he briefly mentions the mathematical concept of chaos, he dismisses it as inconsequential, since its exponents have yet to figure out how to make money based on its predictions.

Complexity theory, the notion that human interactions are inherently unpredictable, is ignored altogether. This renders the work as a whole somewhat less useful as a survey of scientific thought.

Probably the most vexing problem with the book is that the author reduces the larger questions of free will and determinism, of chance and fate, to questions of the marketplace. This will intrigue the practical minded, but may put off the scholarly.

However, the author's encyclopedic learning, fluent style, and passionate enthusiasm make this work absorbing and definitely thought provoking.

* Frederick Pratter is a freelance writer who lives in Hull, Mass.