Which of the following is an example of moral hazard?
A) When a family's belongings are protected against theft and they take special care to look after the house.
B) An individual buys a new auto insurance policy which includes a special payment if the car skids on the ice and the person then begins driving recklessly on ice.
C) When a country expects assistance in the event of a currency crisis and therefore takes special care to avoid such a crisis.
D) When decision-makers expect special assistance in the event of an unfavorable outcome and their behavior changes in such a way to avoid that outcome entirely.
E) When a person with health insurance takes great care not to catch a serious cold.

Question

Quizplus · Accepted Answer

Moral hazard occurs when individuals, companies or governments take greater risks because they are insulated from the potential consequences. Option B is the best choice for moral hazard as the individual with the new insurance policy is incentivized to drive recklessly on ice because they know they will receive a special payment if they skid.

Which of the Following Is an Example of Moral Hazard