Professor Gullible agreed to cancel the ﬁnal examination if students promised to study for it anyway.
The concept of moral hazard would predict that it is unlikely that students will study for the exam.

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party takes more risks because another party bears the cost of those risks. In this case, students may not study for the exam because they know that the consequences of not studying (i.e. failing the exam) have been eliminated by the professor's offer to cancel it. This creates a moral hazard where students are less incentivized to study.

Professor Gullible Agreed to Cancel the ﬁNal Examination If Students