Riskless Society

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Risk Management

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

    The state in which market supply and demand balance each other ...
  3. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  4. Derivative

    A security whose price is dependent upon or derived from one ...
  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 FAQS
  1. 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 >>
  2. What does it mean to be absolutely risk averse?

    Some people are absolutely risk-averse, which means that they cannot tolerate sustaining any sort of loss, even a temporary ... Read Full Answer >>
  3. How can you avoid the sunk cost trap?

    Avoid the sunk cost trap by recognizing that any investment you've made into a project or decision to date should not be ... Read Full Answer >>
  4. What is the difference between a drawdown magnitude and drawdown duration?

    Drawdown magnitude refers to an amount of money, while drawdown duration is in reference to a period of time. Drawdown is ... Read Full Answer >>
  5. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Though the efficient market hypothesis as a whole theorizes that the market is generally efficient, the theory is offered ... Read Full Answer >>
  6. Has the Efficient Market Hypothesis been proven correct or incorrect?

    There is evidence to support the reasoning behind the efficient market hypothesis, but the basic conclusion drawn from the ... Read Full Answer >>
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

    Market Simulators: How To Outperform Warren Buffett

    That moment when you realize you just booked $108 million dollars in less than an hour: it puts butterflies in your stomach.
  7. Mutual Funds & ETFs

    Invest in Emerging Market Currencies with this ETF

    Why this emerging market currency ETF needs to be on your radar.
  8. Chart Advisor

    Buying Opportunities on Upside Wedge Breakouts

    Find buying opportunities in these stocks, which have seen their prices break out of long-term declining wedge patterns.
  9. Stock Analysis

    Small-Caps and Dividends: Perfect Together

    For investors, small-caps shouldn’t be just about growth. They can be powerful income tools, as well.
  10. Mutual Funds & ETFs

    VelocityShares TVIX: A Dangerous Game

    Thinking of leveraging volatility with VelocityShares Daily 2x VIX Short Term ETN? If so, proceed with caution.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center