Riskless Society

A A A

DEFINITION

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.

INVESTOPEDIA EXPLAINS

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.


RELATED TERMS
  1. Equilibrium

    The state in which market supply and demand balance each other and, as a result, ...
  2. Behavioral Finance

    A field of finance that proposes psychology-based theories to explain stock ...
  3. Derivative

    A security whose price is dependent upon or derived from one or more underlying ...
  4. Insurance

    A contract (policy) in which an individual or entity receives financial protection ...
  5. Risk Management

    The process of identification, analysis and either acceptance or mitigation ...
  6. Outcome Bias

    A decision based on the outcome of previous events without regard to how the ...
  7. Hindsight Bias

    A psychological phenomenon in which past events seem to be more important in ...
  8. Centipede Game

    An extensive-form game in game theory in which two players alternately get a ...
  9. Cournot Competition

    An economic model that describes an industry structure in which competing firms ...
  10. Traveler's Dilemma

    A non-zero-sum game played by two participants in which both players attempt ...
Related Articles
  1. What Is Market Efficiency?
    Active Trading

    What Is Market Efficiency?

  2. Are Derivatives A Disaster Waiting To ...
    Options & Futures

    Are Derivatives A Disaster Waiting To ...

  3. Are Derivatives Safe For Retail Investors?
    Options & Futures

    Are Derivatives Safe For Retail Investors?

  4. An Introduction To Behavioral Finance
    Active Trading Fundamentals

    An Introduction To Behavioral Finance

  5. How Companies Use Derivatives To Hedge ...
    Active Trading

    How Companies Use Derivatives To Hedge ...

  6. Active or Passive? How to Blend Aspects ...
    Trading Strategies

    Active or Passive? How to Blend Aspects ...

  7. Herding Tendencies Among Analysts
    Investing Basics

    Herding Tendencies Among Analysts

  8. The NASDAQ Pre-Market: What You Need ...
    Investing Basics

    The NASDAQ Pre-Market: What You Need ...

  9. The Rise And Fall Of The Shadow Banking ...
    Personal Finance

    The Rise And Fall Of The Shadow Banking ...

  10. ChartAdvisor for Aug. 15, 2014
    Chart Advisor

    ChartAdvisor for Aug. 15, 2014

comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center