In an ad for insurance, the text reads "Life's an adventure, and there are plenty of perils awaiting your jewelry: a lost or broken stone, theft, accidental loss, damage, mysterious disappearance Have you thought about insurance?" How does the inclusion of accidental loss and mysterious disappearance create moral hazard?
A) Individuals who purchase insurance are risk averse.
B) Those who seek this jewelry insurance know that tend to lose their jewelry often.
C) Once insured, some individuals wear their jewelry swimming, exercising, etc. where there is an increased risk of loss.
D) Individuals who own jewelry know more about their risk than insurance company.

Question

Quizplus · Accepted Answer

Once insured, individuals may take less care of their jewelry, engaging in riskier behavior because they know they are covered, which is a classic example of moral hazard.

In an Ad for Insurance, the Text Reads "Life's an Adventure