The Uses and Abuses of Risk Management: How Men Learnt to Bet Against the Gods

Kenneth Anderson


This 1997 review in the Times Literary Supplement (London) conjoins two books - the first, by investment banker turned finance historian Peter L. Berstein, is a history of the idea of risk, as it developed from Renaissance times through contemporary finance. The second, by the former editor of the derivatives journal Risk, Lillian Chew, is an account of contemporary financial derivatives and their uses and abuses. The point of linking these two books in a single review is to point out that the basic ideas behind today's financial derivatives - forms of forwards, options, swaps, and so on - are very old. The analysis of risk dates back to the Renaissance, and in particular to a debate between Pascal and Fermat over the issue of how to divide the stakes in an incomplete game.