Sunday, January 31, 2010

Book Review: Against the Gods

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein is the third book I've read in the book swaps I do with my fee only financial advisor. I never would have picked this up to read myself, but I'm much better informed on the topic of risk having read it. Berstein's book is primarily historical, somewhat biographical, and minimally technical in his comprehensive treatment of risk.

The sections and chapters progress historically from the earliest notion of numbers and risk quantification in ancient times to the present day--or at least 1996 when the book came out. The earlier chapters deal with historical developments in the mathematics of probability and statistical theories. The later chapters focus more on risk in modern financial markets. In the concluding chapter titled "Awaiting the Wildness" Bernstein writes:
As we look ahead toward the new millennium, what are the prospects that we can ... hope to bring more risks under control and make progress at the same time? ... despite the many ingenious tools ... created to attack the puzzle, much remains unsolved. Discontinuities, irregularities, and volatilities seem to be proliferating rather than diminishing. (p.329)
Yes, it is a wild and risky world out there! I wonder what the author would say today as we're digging out of the recent implosion in our global financial system? Overall, I enjoyed the book, particularly the biographical sketches of the many intellectual luminaries who contributed to the body of knowledge on risk and probability. I particularly enjoyed the chapter on Prospect Theory which was a core part of Predictably Irrational, another book Brent loaned me. Recognizing the classical view of rationality was wrong and that human "logic" is not so logical leads to some fascinating conclusions about the human condition.
Prospect Theory discovered behavior patterns that had never been recognized by proponents of rational decision-making. Kahneman and Tversky ascribe these patterns to two human shortcomings. First, emotion often destroys the self-control that is essential to rational decision-making. Second, people are often unable to understand fully what they are dealing with. They experience what psychologists call cognitive difficulties. (p. 271)
Prospect Theory discovered asymmetry in human decisions involving gains vs. decisions involving losses. People are more risk averse about winning than losing, i.e. we take more risks to avoid loss than to achieve gains. Adding this discovery to the observation that loss remaining unresolved, such as the loss of a loved one, can provoke intense, irrational, and abiding risk-aversion is a profound insight that explains a lot of human behavior. It also got me thinking more deeply about why I make some of the decisions I do. In addition to the insights on human behavior, this book also confirmed and solidified my thoughts on money management and investing.

Sunday, January 24, 2010

Book Review: Confessions of a Tax Collector

I meet once or twice a year with my financial advisor, and we started swapping books in our meetings. Last year I gave him Tim Keller's The Reason for God and he almost didn't give it back he liked it so much. He said he was getting his own copy for his personal library. He loaned me Predictably Irrational which I'd never heard of and probably never would have picked up myself. I thought it was fascinating. It made me rethink some common sense concepts.

This past week my advisor loaned me Confessions of a Tax Collector: One man's Tour of Duty Inside the IRS by Richard Yancey, another book I never would have picked up to read on my own. It is a fictionalized account of the actual experiences the author had working as a revenue officer inside the IRS. I read almost exclusively non-fiction, and while this book is based on a real life experience, it reads like a novel. I also primarily read books on Christian faith and theology, but this book is a dive into the bowels of the Byzantium known as the IRS.

There were several places in the book where Yancey goes into this stream-of-consciousness yammering that I ended up skipping over, but for the most part he weaves an interesting story. Still, I'm much more a fan of another author by the same last name (no relation), Philip Yancey. "Confessions" is interesting if you've ever wondered what the IRS looks like on the inside, and it kept my attention to the end and was entertaining, but it really didn't make me think--other than realizing I want to have as little contact as possible with the IRS, and I certainly wouldn't want to work there.

Book Review: The God Who Smokes

The God Who Smokes: Scandalous Meditations on Faith by Timothy J. Stoner was a gift from a friend I meet with on a regular basis. We usually meet at Cafe Brazil to discuss what we're reading and life in general. I liked this book much more than the last two books he loaned me, neither of which I could bring myself to finish reading. I bailed on both Empire of Illusion and The Cry of the Soul about half way through. However, I thoroughly enjoyed Stoner's book and read all of it, even the end notes.

Stoner's writes like a novelist, and mentions his poorly selling fictional work several times. Don Miller's Blue Like Jazz reinvigorated sales of his earlier overlooked work. Perhaps Stoner's multiple mentions of his novel will produce the same sort of sales boost if his non-fiction work begins selling well. I don't read much fiction, so I doubt I'll buy it.

Stoner creates a lot of word pictures and writes with emotion concluding many chapters with a Psalm-like blessing. But his book is neither a set of stand alone meditations or a coherent story with beginning, middle, and end. This didn't detract from the book in my mind because I was very interested in the consistent theme running through the chapters. It is a theme I've been struggling with myself for quite some time.

Stoner grew up a fundamentalist Baptist missionary kid in Spanish speaking countries living most of his early life outside the USA. He and his wife have raised three boys and a girl of their own here in the USA plus an adopted African child. He has both seminary and law school training, and is presently involved in orphan justice ministry. His eclectic background gives him an interesting perspective on Christian life in the USA.

The theme that binds the book is Stoner's struggle between the more traditional and fundamentalist practice of the Christian faith in which he grew up, and the modern "emergent" church which finds himself a part of today. He lives in Grand Rapids and his grown sons are involved in Rob Bell's church (Mars Hill). This doesn't keep Stoner from leveling several criticisms of Bell, all of which I agreed with. There are lots of references to Rob Bell and few to Brian McLauren while frequently quoting Peter Kreeft and C.S. Lewis. Stoner struggles with finding the balance between the modern and post-modern church. This is where I am in my own personal faith journey as well so if you're in the same boat you'll probably enjoy this book.