Consider the following two situations.Irene accepts a job where she will be driving in dangerous traffic,so she seeks auto insurance.After Victor buys health insurance,he visits the gym less frequently.Which of these person's actions illustrates moral hazard?
A)both Irene's and Victor's
B)Irene's but not Victor's
C)Victor's but not Irene's
D)neither Victor's nor Irene's

Question

Quizplus · Accepted Answer

Victor's action illustrates moral hazard because he now has insurance to cover his healthcare costs, so he is less motivated to engage in healthy behaviors, such as exercising. Irene's action of seeking auto insurance is not an example of moral hazard because she is taking measures to protect herself and her property from potential damages while driving in dangerous traffic.

Consider the Following Two Situations