Page 5 - Valentino Cattelan - In the name of God: managing risk in Islamic finance

IANUS n. 26-2022 ISSN 1974-9805

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the decision» . From this perspective, if «Cardano, Pascal, and Fermat provided
a method for figuring the risks in each throw of the dice, … Bernoulli introduces
us to the risk-taker - the player who chooses how much to bet or whether to bet at
all. While probability theory sets up the choices, Bernoulli defines the motivations
of the person who does the choosing. This is an entirely new area of study and
body of theory. Bernoulli laid the intellectual groundwork for much of what was
to follow, not just in economics, but in theories about how people make decisions
and choices in every aspect of life» .
8
9
From that time onwards, through Gauss’s normal distribution , Poincaré’s
10
study of information/decision-making and Bachelier’s analysis of speculation ,
the theory of risk has further advanced through Arrow , Knight and Keynes’s
11
notion of risk as ‘measurable uncertainty’ . An uncertainty whose source can be
12
found in others’ intentions, as explained by Von Neumann, Morgenstern and
Nash’s game theory ; and whose measure has led financial theory to well-known
13
concepts such as portfolio selection, diversification, the capital asset pricing
model (by Markowitz and Sharpe), the Black and Scholes formula, and to
prospect theory in behavioural economics (by Kahneman and Tversky) .
14
Of course, this very concise introduction to Bernstein’s book does not even
distantly mirror the richness of its contents: the interested reader will find in
Against the gods, and its broad bibliography, much better satisfaction of his
intellectual enquiries. But, at least superficially, this summary highlights how
centuries of extraordinary intellectual elaboration in Western society transformed
the future from an antagonist into a product of a (human) present where risk is
quantified, measured, and managed to mitigate the perils of the unexpected.
Accordingly, within this cultural setting, activities of risk-taking, -transfer and -
pooling (i.e., banking, investment, insurance, or even gambling, businesses) have
become in the West a source per se of legitimate profit, where, in the
(extra)ordinary enterprise of risk management, as we know it today, the ‘gods’ are
left aside.
But from where does the idea of ‘risk’ come from? And how much does it
explain about human nature, given that its story, in the end, is all about «[t]he
actions we dare to take» and «how free we are to make choices»?
If the Latin resecare, resicum, risicum, riscus are the direct precedents for the
Italian risicare, meaning ‘to dare’, and risco (from which the current Italian rischio,

7 ID., 100. Daniel Bernoulli, in fact, introduced the revolutionary idea that «the value of an item
must not be based on its price, but rather on the utility that it yields», which varies from person to
person (BERNSTEIN, cit., 99; italics in the original text).
8 ID., 108 (italics in the original text).
9 ID., 136.
10 ID., 200.
11 ID., 204.
12 ID., 219.
13 ID., respectively at 232, 235, and 243.
14 ID., respectively at 260, 304 ff., 270.

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