Which of the following is an example of moral hazard?
A)a driver is arrested for drunk driving
B)a pet-sitter being paid to walk a dog for one hour per day only walks the dog for 20 minutes per day
C)a thief steals a car
D)All of the above are examples of moral hazard.

Question

Quizplus · Accepted Answer

Moral hazard refers to a situation in which one party takes risks because another party will bear the costs if things go wrong. In this case, the pet-sitter is being paid to walk the dog for one hour per day, but only walks the dog for 20 minutes per day. The pet-sitter is taking the risk of not fulfilling their obligation because they know that the owner of the dog will likely not find out and will still have to pay for the full hour. This is an example of moral hazard.

Which of the Following Is an Example of Moral Hazard