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Against the Gods

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Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein explains that the modern world was created by the mathematics of chance. Earlier times had capitalists and traders, bankers and merchants. Our culture is special because of the confluence of several factors, perhaps the most important of which was the Renaissance idea that we could -- and should -- discover and control the future.

"When the Soviets tried to administer uncertainty out of existence through government fiat and planning they choked off social and economic progress."

"The Greeks believed that order is only to be found in the skies ... But the perfection of the heavens only served to highlight the disarray of life on earth."

"Up until the Renaissance, people perceived the future as little more than a matter of luck or the result of random variations and most of their decisions were driven by instinct. When the conditions of life are so closely linked to nature, not much is left to human control. As long as the demands of survival limit people to the basic functions of bearing children, growing crops, hunting, fishing, and providing shelter, they are simply unable to conceive of circumstances in which they might be able to influence the outcomes of their decisions. A penny saved is not a penny earned unless the future is something more than a black hole."

"But the real hero of the story, then, is not Cardano, but the times in which he lived. The opportunity to discover what he discovered had existed for thousands of years. And the Hindu-Arabic numbering system had arrived in Europe at least 300 years before Cardano wrote Liber de Ludo Aleae The missing ingredients were the freedom of thought, the passion for experimentation, and the desire to control the future that were unleashed during the Renaissance."

From there, Bernstein covers the expected territory of probability theory and statistics: Pascal, Fermat, Graunt, Galton... There are many allusions and examples from the American stock markets, Bernstein being the first editor of The Journal of Portfolio Management and author of several books including Capital Ideas: The Improbable Origin of Modern Wall Street. While an empassioned capitalist, he is not perfectly consistent in an Objectivist sense. Also, oddly enough, there is very little mathematics here and unfortunately a few gaffes, just complete misstatements of obvious mathematics. Nonetheless, this is an engaging and enlightening exploration of the history of risk.

As an aside, one of my favorite quotes comes from Thomas Caldecott Chubb, founder of the insurance company that prospered from the arithmetic of risk: If there were no losses, there would be no premiums.

I am about halfway through Bernstein now. Has anyone else read this book?

Edited by Michael E. Marotta

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Michael, I have not read it. The following Objectivity essay, of related interest, is very nice and is available online.

“On Probability” by Merlin Jetton

Volume 2, Number 1, Pages 1–29

Abstract

Jetton argues that there are two related concepts of probability going under the same name. One is probability as it pertains to chances in the world. The other is probability as it pertains to confidence in our expectations.

An overview of some of the mathematics of probability is given. This includes calculation of conditional probabilities, laws of large numbers of trials, and probability distributions. With this knowledge of the mathematics of probability in hand, Jetton leads us into the philosophical interpretations of probability.

He discusses the logical interpretation of probability maintained by J. M. Keynes, the subjective interpretation of Bruno de Finetti, and the objectivist interpretations of Richard von Mises and Karl Popper. For each of these interpretations, Jetton assesses its strengths and weaknesses in giving an account of the two types of probability: chances in the world and levels of confidence.

Article is here: http://objectivity-archive.com/volume2_number1.html#1

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I read Against the Gods several years ago. It was published in 1998, so my guess is I read it in 1999 or 2000. I enjoyed reading it, but don't remember much in detail. There are many reviews on Amazon, generally favorable.

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Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein explains that the modern world was created by the mathematics of chance. Earlier times had capitalists and traders, bankers and merchants. Our culture is special because of the confluence of several factors, perhaps the most important of which was the Renaissance idea that we could -- and should -- discover and control the future.

(snip)

I am about halfway through Bernstein now. Has anyone else read this book?

The book is quite good. The subject matter area - in fact, almost anything having to do with "chance" - is one in which Objectivists are, well, cognitively challenged.

Enjoy.

Bill P (Alfonso) --- a Ph.D. in Statistics

Edited by Bill P

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The subject matter area - in fact, almost anything having to do with "chance" - is one in which Objectivists are, well, cognitively challenged.

Bill,

LOL...

Thanks for the laugh. Actually, it seems like Objectivists who have control issues are the most "cognitively challenged" by chance. They can get quite loud when they feel threatened, too.

I doubt Objectivists like David Kelley, for example, is.

Michael

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Sounds interesting.

When I was in High School I read a history book that traced most of the modern world to chance - although it was more about environmental issues than financial speculation. There was a chapter for example called "The Industrial Revolution: How cold Scottish winters changed the World".

Many Objectivists seem similarly challenged to this sort of thing as well. It's like they want to point to correct ideological commitment as the cause of all "Progress Qua Progress" rather than factors operating at a far more mundane level. This is good as it places them at the center of the universe in terms of status and power instead of the unwashed masses. Power, Ego, quaint categories of the Good and Evil - reality is more complex than that and hence must be ignored at all costs.

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I just posted a review of this book to my blog. Over the past few weeks, on RoR, I had occasion to refer to the book, so I came here for my first review. My intention was to quickly re-read Against the Gods and then quickly write a 1000-word summary. However, I got bogged down making even more notes. I already have over 20 Post-its. Hardly a page goes by that does not have something worth remembering.

John Rothchild in "Books" for the NYT Feb 16, 1997, wrote:

This ambitious and readable book traces the development of oddsmaking in much the same way Bertrand Russell once traced the development of Western thought. Peter L. Bernstein argues that the Hindu-Arabic numbering system and the mathematicians who refined it changed the course of history as much as -- or more than -- the political philosophers and theologians who generally get the credit. His main characters are hardly as famous as Plato or Descartes, but Mr. Bernstein makes a convincing case that they should be: Leonardo Pisano, better known as Fibonacci, whose ''Book of the Abacus'' was published in 1202; Girolamo Cardano, who wrote the influential ''Book on Games of Chance'' in the 1500's; and John Graunt, whose study of births and deaths in London in 1662 gave actuaries their start and became the foundation for the modern insurance industry. Mr. Bernstein, an economic consultant, has provided an engaging introduction to the oddsmakers, whom he regards as true humanists helping to release mankind from the chokeholds of superstition and fatalism.

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The subject matter area - in fact, almost anything having to do with "chance" - is one in which Objectivists are, well, cognitively challenged.

Bill,

LOL...

Thanks for the laugh. Actually, it seems like Objectivists who have control issues are the most "cognitively challenged" by chance. They can get quite loud when they feel threatened, too.

I doubt Objectivists like David Kelley, for example, is.

Michael

I wasn't aware David Kelley was an Objectivist.

Signed, Harry Binswanger...

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As I note in my complete review, much about this is objective, even from the pen of Keynes:

“When once the facts are given which determine our knowledge, what is probable or improbable in these circumstances has been fixed objectively and is independent of our opinion.” (A Treatise on Probability, 1921; cited pg 226.)

Also, consider the quote from Harry Markowitz on diversification: “Diversification is both observed and sensible; a rule of behavior which does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim.”

Small-o objectivism is rational-empiricism. The scientific method works because it tests both facts and theories. It is not enough to gather observations; you also must explain them. Conversely, any theory must always stand up to new facts or be changed or even superseded. This is small-o objectivism.

One problem with the culture of Capital-O Objectivism is that too many who claim it for themselves actually endorse Absolutism. Absolute truths such as the Law of Identity are the foundation of Objectivism. In Atlas Shrugged, Hank Rearden dubbed the government stooge at his mlls, "Non-Absolute" for saying "I know there are no absolutes, but..." Absolutes do exist, but not every truth is absolute. Objective truths depend on context. "Force equals mass times acceleration" can be derived from mathematics and demonstrated by measurement, but only for objects within our immediate order of existence. The weak nuclear force is explained by a different law.

Here on OL, but also on other boards I have visited and posted to, you can find arguments against modern physics. Relativity and the probablistic nature of quantum mechanics just sound bad to the absolutists. Moral absolutes and political absolutes follow logically once you accept the premise and are willing to argue away contrary facts.

On a closing note, Bernstein may be making an error of "my size fits all" in that he sees his own study of the probabilities of market prices as the center of civilization. Rand, of course, was not alone in seeing the development of natural rights in the Enlightenment as the root of capitalism. Both are significant factors in a complex interplay across times and places.

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...Objective truths depend on context. "Force equals mass times acceleration" can be derived from mathematics and demonstrated by measurement, but only for objects within our immediate order of existence. The weak nuclear force is explained by a different law.

Here on OL, but also on other boards I have visited and posted to, you can find arguments against modern physics. Relativity and the probablistic nature of quantum mechanics just sound bad to the absolutists. Moral absolutes and political absolutes follow logically once you accept the premise and are willing to argue away contrary facts.

I am hoping you could develop your thoughts more clearly.

Are you a supporter of indetermistic QM [abandon identity and causality]?

I am aware that many people do not understand that Special Relativity is a deterministic theory and that Einstein's interpretation is only one view while LET provides the same mathematics with an entirely different interpretation most are not aware of. A better understanding of LET would help many with their angst concerning relativity.

In any case it my view that both relativity and QM are due for major overhauls so much of what is argued at present is about to go out the window.

Dennis

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Dennis, I have absolutely no idea. I had to google LET to find "linear energy transfer." If this were the 18th century, I would claim that phlogiston is objective. It really does not matter to me because it is beyond my understanding to question the mathematics and the experiments. I accept them as reported because I must. But I accept them as the best (objective) understanding we have and I do not expect them to be absolute. I can live with ambiguities... which absolutists cannot, whether they are religious or "Objectivist" or Marxist or whatever.

I have run into Objectivists who deny game theory, for instance, but mostly, game theory is denied by the post modernist left. Of course, they deny the validity of science, per se. And you have to be careful there because Hayek also warned against inappropriate scientism, i.e., the "conceit of knowledge." Once you start down that that road, your only salvation is to remember that the slippery slope fallacy is itself a fallacy, otherwise it leads to solipsism. (Bertrand Russell quippped about the socialite who said that she was a solipsist but never met anyone else who was.) Anyway, I don't know. It ends there unless you can enlighten me.

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Dennis, I have absolutely no idea. I had to google LET to find "linear energy transfer." If this were the 18th century, I would claim that phlogiston is objective. It really does not matter to me because it is beyond my understanding to question the mathematics and the experiments. I accept them as reported because I must. But I accept them as the best (objective) understanding we have and I do not expect them to be absolute. I can live with ambiguities... which absolutists cannot, whether they are religious or "Objectivist" or Marxist or whatever.

I have run into Objectivists who deny game theory, for instance, but mostly, game theory is denied by the post modernist left. Of course, they deny the validity of science, per se. And you have to be careful there because Hayek also warned against inappropriate scientism, i.e., the "conceit of knowledge." Once you start down that that road, your only salvation is to remember that the slippery slope fallacy is itself a fallacy, otherwise it leads to solipsism. (Bertrand Russell quippped about the socialite who said that she was a solipsist but never met anyone else who was.) Anyway, I don't know. It ends there unless you can enlighten me.

http://en.wikipedia.org/wiki/Lorentz_ether_theory

I was fortunate that I was taught LET the same time I was taught Einstein relativity in undergraduate relativity. Our professor's expertise was specifically theoretical relativity so he didn't want us going off half informed like 99% of those who take undergraduate relativity.

At George H. Smith's recommendation I read Hayek's "The Counter-Revolution of Science". He has a great deal to say about the history of Socialism-Communism-Fascism but very little to say about science. Some of what he said was incorrect - in particular he bought into the errors concerning the status of indeterministic QM promoted by Bohr and von Neumann. Popular concepts at the time but disproved by J.S. Bell in 1964 - though you would think this were still some time prior to 1952 given the status most people ascribe to indetermistic QM. Bad but popular ideas often remain long after they have no validity in logical discussions.

Dennis

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Clear as mud.

All I care about is finding 89.5 FM on the radio. Not that I do not "care" - it is interesting - but it is what I understand. I once mentored a Cub Scout class where were built crystal radios. So, I get that. Beyond that, it is not something that affects my experiential world.

"A man ought to know his limits." - Dirty Harry in "Magnum Force"

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Clear as mud.

All I care about is finding 89.5 FM on the radio. Not that I do not "care" - it is interesting - but it is what I understand. I once mentored a Cub Scout class where were built crystal radios. So, I get that. Beyond that, it is not something that affects my experiential world.

"A man ought to know his limits." - Dirty Harry in "Magnum Force"

If you have any questions I can attempt a translation.

Dennis

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