Moral hazard is a problem in which it is difficult to observe a
A)hidden characteristic.
B)hidden action.
C)hidden budget constraint.
D)hidden set of preferences.

Question

Quizplus · Accepted Answer

Moral hazard occurs when one party is protected from the consequences of their risky behavior or actions, which can lead to a change in their behavior. This change in behavior can be difficult to observe, as it is not always evident whether the individual is taking risks or is behaving responsibly. Therefore, the problem of moral hazard arises from hidden actions, making choice B the correct answer.

Moral Hazard Is a Problem in Which It Is Difficult