Before I begin, I would like to make it clear that I am not trying to be controversial by discussing a sensitive subject such as religion. I want to share with you my findings in my quest to understand risk and more importantly, how to manage it effectively.
It was 1:57 am. I was desperately trying to find a means to put my thoughts to rest. After all, it was late and I needed to either sleep or be productive. I chose to immerse myself in my search and found it to be ironic that religion found it’s way into the equation.
It all started on June 19, 1623 in one of France’s oldest cities Clermont-Ferrand, when baby Blaise Pascal was brought into this world. Pascal was a child prodigy and is a celebrated mathematician, physicist, and religious philosopher.  He was also the first to develop the idea probability and more importantly Pascal’s Gambit, which is the area of this topic’s focus.
Peter Bernstein describes Pascal’s Gambit very eloquently by saying:
Pascal spent half his time leading an unsavory life and halfÂ the time being very ascetic. In the end, he came to the conclusion that heÂ must give up the sinful life and retire to a monastery. While in the monastery,Â he asked himself the following question: â€˜â€˜God is, or God is not?â€™â€™ He said thatÂ reason cannot answer this questionâ€”an important statement to come from aÂ mathematician. He said belief in God is not a decision. I cannot wake up oneÂ day and say, â€˜â€˜Today I will believe in God,â€™â€™ or â€˜â€˜Today I will not believe in God.â€™â€™Â It does not work like that. The answer to Pascalâ€™s question comes from within,Â but you can decide how you will live your life. You can act as though there isÂ a God, or you can act as though there is not a God. This is your choice. If youÂ act as though there is a God, you lead a life of virtue. If you die and you findÂ out that there is no God, well, you gave up a few things but you lived a goodÂ life. Look at it from the other point of view. Suppose you act as though there isÂ not a God and lead a life of sin and lust, and then you die and discover thereÂ is a God; you are in big trouble. Thus, Pascal argued that the better bet, theÂ better wager, is to behave as though there is a God. So, in many instances, theÂ consequences of decisions must outweigh the probabilities. Even outcomes with small probabilities may have big consequences. 
What does this all mean in trying to understand risk?
- It is those events that have low probabilistic outcomes but catastrophic consequences that cripple companies [Credit Crisis]
- We should always be reminded of these risks and formulate our investment thesis accordingly and if possible hedge or mitigate these risks
- Believing in a GOD is the better wager.
 Peter L. Bernstein. Risk:Â The Hottest Four-Letter Word in Finance.Â The CFAÂ Institute Risk Symposium. New York City. 22â€“23 February 2006.
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its your best bet
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Where have you been, Hammour? And what a splendid re-blog-entry! I had never thought of my faith as a playing the odds kind of thing, but it gave me a big grin to see faith evaluated in such a risk-averse fashion. 🙂