Risks associated with individual or collective decisions in choosing alternatives is a subject matter that most people are alienated from. At best one understands risk when confronted with a failure in say a business venture.

But risk is present even in a non-business environment like the choice of ones school would more or less determine the path that one takes, career choices that one makes and enhances or reduces the chances of future success.

Peter L Bernstein, the founding editor of the Journal of Portfolio Management, seeks to explain through his book "Against the Gods" the power of mathematical discipline; the laws of probability, or commonly referred to as risk management, to facilitate circumnavigation through a sea of uncertainty. Though he brings about a historical perspective to the science of risk management, he also clearly brings out its evolved practicality to modern societies. As he says, "when our world was created nobody remembered to include certainty.

We are never certain. We are always ignorant to some degree". And essentially this is where modern man stands out from his forebearers in that he need not seek divine opinions before embarking on a risky venture, journey or even a job. He has the tools available to him which he can use to understand and measure his attendant risk, and he can choose an alternative with acceptable levels of risk even though he cannot eliminate it altogether. According to Bernstein, the human ability to measure risk was the beginning of the end of superstitious beliefs.

The ability to define what may happen in the future and to choose among available alternatives now lies at the heart of modern societies; and the management of risk guides us over a vast range of decision making.

And no where is this more applicable than in financial and insurance markets. Sophistication in today's financial markets, for one, would certainly not be in existence but for the quantitative knowledge that has become possible during the last three hundred odd years. But the bottomline here is that no matter what, the future will always be unknown to us, but what has been achieved in risk management so far is based on one principle, as Gottfried von Liebniz said, "the future repeats the patterns of the past, but for the most part". And here is where the laws of probability come into being.

Bernstein journey's into the minds of mathematician-philosophers, the Bernoulli family; Jacob (discover of the law of large numbers, which developed the modern theory of probability and risk management), Daniel and Nicolaus. Also of Luca Paccioli and Abraham De Moivre (who discovered the concept of the normal distribution and standard deviation) and the Seventeenth Century Frenchmen, Blase Pascal and Pierre de Fermet, who were credited with being the first men to apply mathematical rigour to the task of measuring risk. Something the more ancient scholars like the Talmudic Jews understood but were never able to quantify. Or even like the Italian scientists Girolamo Cardano and Galilieo who came close to understanding the principles of risk but who stopped only at seeking to improve odds at the gambling table.

And even though Bernstein has described the evolution of risk and the techniques that have been developed to combat it and has tried to describe the science and the art of risk management as simply as possible, the book is clearly for those who enjoy mathematics even if it is at an amateur level.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.