Bridge over ocean
1 January 1995 Financial Analysts Journal Volume 51, Issue 1

Risk as a History of Ideas

  1. Peter L. Bernstein

The perception of risk throughout history has reflected the temper and times in each society as the emphasis has swung from gut to measurement and back to gut. As long as people sensed they had no control over their futures, chance explained the entire outcome of risk taking. Then, the collection of ideas we call the Renaissance freed the human spirit for experimentation and exploration, demonstrating that choice is a valid human activity and that risk is something to be taken as well as faced. Quantification became essential, leading to the development of the laws of probability. In more modern times, uncertainty has replaced many of the neat concepts of probability and has even begun to attack the roots of the capital ideas of finance: mean–variance, the efficient market hypothesis, and the capital asset pricing model.

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