Riskless Society


DEFINITION of 'Riskless Society'

A fictional society in which the world markets become complete and sophisticated enough that every imaginable risk can be mitigated by insurance. The notion of the riskless society was deveopled by Dr. Kenneth Arrow and Gerard Debreu, which has led the way to further progress in the risk management sciences.

BREAKING DOWN 'Riskless Society'

The theories presented by Arrow and Debreu were based on an assumption of market equilibrium that stands in opposition to much of the empirical evidence the markets provide us with. Modern behavioral finance theory attempts to study markets under states of non-equilibrium.

Debreu won the Nobel Memorial Prize for this work in 1983. Since Arrow and Debreu's work was first published, the prevalence of financial derivatives products has grown exponentially.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  3. Risk Management

    The process of identification, analysis and either acceptance ...
  4. Equilibrium

    The state in which market supply and demand balance each other ...
  5. Insurance

    A contract (policy) in which an individual or entity receives ...
  6. Head-Fake Trade

    A trade where a stock or market appears to be making a move in ...
Related Articles
  1. Active Trading

    What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?
  2. Options & Futures

    Are Derivatives A Disaster Waiting To Happen?

    They've contributed to some major market scandals, but these instruments aren't all bad.
  3. Options & Futures

    Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.
  4. Active Trading Fundamentals

    An Introduction To Behavioral Finance

    Curious about how emotions and biases affect the market? Find some useful insight here.
  5. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  6. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  7. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  8. Investing News

    6 Signs You Are Addicted To Investing

    An addiction to trading can ruin your life and relationships. Not to mention the monetary costs. There are telltale signs that you've gone too far.
  9. Investing

    3 Reasons to Ignore Market Volatility

    If you can keep your head while those about you are losing theirs, you can make a nice return in roiling markets.
  10. Investing Basics

    How to Know When it's Time to Sell a Stock

    Knowing when to sell a stock isn't always easy. Keep in mind these tips to help you know when to say when.
  1. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  2. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  3. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  4. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>
  5. What is the difference between a short squeeze and a long squeeze?

    A short squeeze and a long squeeze are situations that can force traders and investors out of their positions. A short squeeze ... Read Full Answer >>
  6. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!