One of the troubles with an insight is that when you then explain it to someone else, they find it obvious. It can be a bit disheartening, but people seem to have a knack for finding surprises obvious in hindsight. Which, of course, doesn’t make them any less of a surprise at the time.
So, coming across a book that points out that stuff that I take for granted was not taken for granted 500 years back, and in fact, enabled civilisation as we know it today to flourish, I was a bit surprised, you might say. It was interesting to try to put myself in the position of people who didn’t know about probability, to see how something so “obvious” could be an exciting insight.
An interesting journey through the birth and history of risk management
The author, Peter L Bernstein, puts his main thesis plainly enough at the start – “The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature.” However, it’s a good thesis, is extensively researched, and Bernstein writes about it well. Enough to sustain interest over some 330 pages.
I found it quite compelling to think that, before the Renaissance, people thought of the future as something they couldn’t control, only put up with. And, that God or the Fates dictated what would happen, or tomorrow would simply be same as today, and it was egotistical or heretical to try. This assumption closed down any thought of trying to build a science of probability, so until the assumption was broken, we couldn’t develop probability, statistics, or insurance.
Marine insurance was needed to make European colonisation economically feasible. Life insurance was sold by governments needing to raise funds to wage wars. Risk management is used by organisations to manage large projects. Home or health insurance are regularly used by prudent families to protect against disasters. Society would be a lot smaller, simpler and sadder without this elementary mathematical invention. Yes, actuaries are heroes.
Bernstein drew me into the successive insights produced by keen minds over the recent centuries that has taken us to where we are today in economics, finance and gambling. Some of the people he profiled were more interesting than others (but others may have their own favourites) – the initial Renaissance thinkers and the behavioural finance guys were pretty cool. It would seem to be a rather complete set of the important contributors.
If you have any interest in modern history, economics or mathematics, you’ll probably find this book a worthwhile read. And it also made me reflect on what other basic assumptions we might hold that could be overturned in order to advance society.