A person starting to drive more recklessly after signing a contract with an automobile insurance company is an example of
A)adverse selection.
B)moral hazard.
C)signaling.
D)screening.

Question

Quizplus · Accepted Answer

This situation is an example of moral hazard, which occurs when a person's behavior changes in a way that increases the likelihood of an insured loss after becoming insured. In this case, the driver may believe that the insurance company will cover any potential damages resulting from reckless driving, leading them to take more risks on the road.

A Person Starting to Drive More Recklessly After Signing a Contract