AGAINST THE GODS

THE REMARKABLE STORY OF RISK

A history of probability from an economist and author of a history of Wall Street (Capital Ideas, 1991). Modern risk theory dates from a little geometric model invented in 1654 called Pascal's Triangle, which Blaise Pascal used to address a perennial intellectual question: If two participants quit a game of chance before finishing, how is the pot divided? Pascal's Triangle answered the question by showing the proportions of probable outcomes at any given stage of a game. Games dominated theories of risk for a long while, until the English began analyzing death records, resulting in the first actuarial tables, and the Dutch did the same with the successes and failures of merchant shipping. The bell curve and the concept of standard deviations arrived, after much tedious experimentation, in the 19th century—and are very much with us still, in political polling, for instance, and in the analysis of stocks. These classical concepts retain their value, but the irrational, catastrophic events of the 20th century led economists such as John Maynard Keynes to discard the past as a reliable gauge for the future and embrace uncertainty as the only real operating principle. Chaos theorists are presently engaged in an attempt to computerize the minutiae of reality, arguing the need for ongoing, ever-changing models of the future, and rejecting the mean of the bell curve, because the mean changes even as it is identified. There is no norm, in other words, but Bernstein argues that this is cause for hope, rather than despair. He concurs with Keynes that probabilities exist; we simply do not know enough to find them. Therefore, an informed decision matters all the more: A calculated risk is superior to a fool's wager. A dense but compelling model of how the world works.

Pub Date: Oct. 18, 1996

ISBN: 0-471-12104-5

Page Count: 352

Publisher: Wiley

Review Posted Online: May 20, 2010

Kirkus Reviews Issue: Sept. 1, 1996

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Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our...

THINKING, FAST AND SLOW

A psychologist and Nobel Prize winner summarizes and synthesizes the recent decades of research on intuition and systematic thinking.

The author of several scholarly texts, Kahneman (Emeritus Psychology and Public Affairs/Princeton Univ.) now offers general readers not just the findings of psychological research but also a better understanding of how research questions arise and how scholars systematically frame and answer them. He begins with the distinction between System 1 and System 2 mental operations, the former referring to quick, automatic thought, the latter to more effortful, overt thinking. We rely heavily, writes, on System 1, resorting to the higher-energy System 2 only when we need or want to. Kahneman continually refers to System 2 as “lazy”: We don’t want to think rigorously about something. The author then explores the nuances of our two-system minds, showing how they perform in various situations. Psychological experiments have repeatedly revealed that our intuitions are generally wrong, that our assessments are based on biases and that our System 1 hates doubt and despises ambiguity. Kahneman largely avoids jargon; when he does use some (“heuristics,” for example), he argues that such terms really ought to join our everyday vocabulary. He reviews many fundamental concepts in psychology and statistics (regression to the mean, the narrative fallacy, the optimistic bias), showing how they relate to his overall concerns about how we think and why we make the decisions that we do. Some of the later chapters (dealing with risk-taking and statistics and probabilities) are denser than others (some readers may resent such demands on System 2!), but the passages that deal with the economic and political implications of the research are gripping.

Striking research showing the immense complexity of ordinary thought and revealing the identities of the gatekeepers in our minds.

Pub Date: Nov. 1, 2011

ISBN: 978-0-374-27563-1

Page Count: 512

Publisher: Farrar, Straus and Giroux

Review Posted Online: Sept. 4, 2011

Kirkus Reviews Issue: Sept. 15, 2011

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Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.

GOOD ECONOMICS FOR HARD TIMES

“Quality of life means more than just consumption”: Two MIT economists urge that a smarter, more politically aware economics be brought to bear on social issues.

It’s no secret, write Banerjee and Duflo (co-authors: Poor Economics: A Radical Rethinking of the Way To Fight Global Poverty, 2011), that “we seem to have fallen on hard times.” Immigration, trade, inequality, and taxation problems present themselves daily, and they seem to be intractable. Economics can be put to use in figuring out these big-issue questions. Data can be adduced, for example, to answer the question of whether immigration tends to suppress wages. The answer: “There is no evidence low-skilled migration to rich countries drives wage and employment down for the natives.” In fact, it opens up opportunities for those natives by freeing them to look for better work. The problem becomes thornier when it comes to the matter of free trade; as the authors observe, “left-behind people live in left-behind places,” which explains why regional poverty descended on Appalachia when so many manufacturing jobs left for China in the age of globalism, leaving behind not just left-behind people but also people ripe for exploitation by nationalist politicians. The authors add, interestingly, that the same thing occurred in parts of Germany, Spain, and Norway that fell victim to the “China shock.” In what they call a “slightly technical aside,” they build a case for addressing trade issues not with trade wars but with consumption taxes: “It makes no sense to ask agricultural workers to lose their jobs just so steelworkers can keep theirs, which is what tariffs accomplish.” Policymakers might want to consider such counsel, especially when it is coupled with the observation that free trade benefits workers in poor countries but punishes workers in rich ones.

Occasionally wonky but overall a good case for how the dismal science can make the world less—well, dismal.

Pub Date: Nov. 12, 2019

ISBN: 978-1-61039-950-0

Page Count: 432

Publisher: PublicAffairs

Review Posted Online: Aug. 29, 2019

Kirkus Reviews Issue: Sept. 15, 2019

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