BOOK REVIEWS
THIS ISSUE’S TOP RECOMMENDATION
MARK RUBINSTEIN: A HISTORY OF THE THEORY OF
INVESTMENTS – MY ANNOTATED BIBLIOGRAPHY
This is a strange book: it appears to be the catalogue of an individual’s
library. The dust jacket accurately (for once) describes the book as a
fi rst-of-its-kind reference work.
Section one, ‘The Ancient Period’, covers from 1200 to 1950 in less
than a hundred pages; ‘The Classical Period’ purportedly covers 1950 to
1980 and occupies almost two thirds of the book. The concluding
‘Modern Period’ is short – only 37 pages out of 348. What are we to
make of this balance? It tells us that the explosion of creativity that
spans Markowitz’s paper on optimisation and includes the Black-Scholes
paper on option pricing was one of those especially creative periods in
the history of ideas. It suggests that since 1980 researchers have simply
been fi lling in the gaps. It also tells us that their insights of the ‘classical’
period did not spring from a vacuum, but built on a long period of
intellectual enquiry that preceded it.
Another odd thing about this book is that in spite of being a history,
Rubinstein does not feel constrained by chronology. Instead, he
organises his bibliography by topics. This yields some surprises.
Kahneman and Tversky’s 1979 article, ‘Prospect Theory’, is included in
the ancient period, pre-1950, and not in the Classical Period of 1950 to
1980. Why? Because the topic of Prospect Theory is the utility of
outcomes and Rubinstein wants to link it with von Neumann’s and
Morgenstern’s Theory of Games and Economic Behaviour and the early
work of Friedman and Markowitz on utility.
We teach much of Rubinstein’s ‘classical period’ concepts for the CFA,
but not much about the intellectual bedrock from which they sprang. I
recommend it to anybody interested in the history of ideas.
IAIN MCLEAN : ADAM SMITH – RADICAL AND EGALITARIAN:
AN INTERPRETATION FOR THE 21ST CENTURY
Smith is important to us as CFA charterholders because he is seen by many
as legitimising the idea of self-interest and only self-interest as the
justifi cation for economic choice. “It is not from the benevolence of the
butcher, the brewer, or the baker, that we expect our dinner, but from their
regard to their own self-interest.” The butcher, brewer, the baker, the
investment analyst and the portfolio manager: we are all rational wealth
maximisers, or at least, rational expected utility maximisers. And so we
should be, if we value economic growth.Yet as ASIPs and CFAs we follow a
code of ethics that requires us to set aside pure self-interest at times. ‘When’
and ‘why’ are questions that all moral philosophers struggle with. Although
Smith is known for his Wealth of Nations his gravestone in Edinburgh refers
to his other great work, The Theory of Moral Sentiments. McLean’s short
book explores this less well-known side of Smith in an attempt to re-capture
the great thinker for the centre-left of contemporary politics. Indeed
the foreword is written by another famous Scotsman, namely one
Gordon Brown.
WWW.CFAUK.ORG PROFESSIONAL INVESTOR 53
52-5452-54 book reviews.indd 53book reviews.indd 53 27/11/0827/11/08 16:02:0116:02:01
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