Against the Gods: The Remarkable Story of Risk Read Online Free

betting in a game of chance, but you need far
more information to predict who will win and who will lose when the
outcome depends on skill as well as luck. There are cardplayers and
racetrack bettors who are genuine professionals, but no one makes a
successful profession out of shooting craps.
    Many observers consider the stock market itself little more than a
gambling casino. Is winning in the stock market the result of skill combined with luck, or is it just the result of a lucky gamble? We shall
return to this question in Chapter 12.
    Losing streaks and winning streaks occur frequently in games of
chance, as they do in real life. Gamblers respond to these events in
asymmetric fashion: they appeal to the law of averages to bring losing
streaks to a speedy end. And they appeal to that same law of averages to
suspend itself so that winning streaks will go on and on. The law of averages hears neither appeal. The last sequence of throws of the dice conveys absolutely no information about what the next throw will bring.
Cards, coins, dice, and roulette wheels have no memory.
    Gamblers may think they are betting on red or seven or four-of-akind, but in reality they are betting on the clock. The loser wants a short run
to look like a long run, so that the odds will prevail. The winner wants
a long run to look like a short run, so that the odds will be suspended.
Far away from the gaming tables, the managers of insurance companies
conduct their affairs in the same fashion. They set their premiums to
cover the losses they will sustain in the long run; but when earthquakes and fires and hurricanes all happen at about the same time, the short run
can be very painful. Unlike gamblers, insurance companies carry capital
and put aside reserves to tide them over during the inevitable sequences
of short runs of bad luck.

    Time is the dominant factor in gambling. Risk and time are opposite sides of the same coin, for if there were no tomorrow there would
be no risk. Time transforms risk, and the nature of risk is shaped by the
time horizon: the future is the playing field.
    Time matters most when decisions are irreversible. And yet many
irreversible decisions must be made on the basis of incomplete information. Irreversibility dominates decisions ranging all the way from
taking the subway instead of a taxi, to building an automobile factory
in Brazil, to changing jobs, to declaring war.
    If we buy a stock today, we can always sell it tomorrow. But what
do we do after the croupier at the roulette table cries, "No more bets!"
or after a poker bet is doubled? There is no going back. Should we
refrain from acting in the hope that the passage of time will make luck
or the probabilities turn in our favor?
    Hamlet complained that too much hesitation in the face of uncertain outcomes is bad because "the native hue of resolution is sicklied
o'er with the pale cast of thought ... and enterprises of great pith and
moment ... lose the name of action." Yet once we act, we forfeit the
option of waiting until new information comes along. As a result, notacting has value. The more uncertain the outcome, the greater may be
the value of procrastination. Hamlet had it wrong: he who hesitates is
halfway home.

    To explain the beginning of everything, Greek mythology drew on
a giant game of craps to explain what modern scientists call the Big Bang.
Three brothers rolled dice for the universe, with Zeus winning the heavens, Poseidon the seas, and Hades, the loser, going to hell as master of the
underworld.
    Probability theory seems a subject made to order for the Greeks,
given their zest for gambling, their skill as mathematicians, their mastery
of logic, and their obsession with proof. Yet, though the most civilized of all the ancients, they never ventured into that fascinating world. Their
failure to do so is astonishing because the Greeks had the only recorded
civilization up to that point untrammeled by a dominating