Moral hazard occurs when people behave recklessly because they know they will be saved if things go wrong.

Question

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This is the definition of moral hazard. When individuals or organizations are protected from the repercussions of their actions, they may take risks or behave irresponsibly because they know they won't bear the full cost of any negative outcomes. This can create a vicious cycle in which repeated rescues and bailouts reinforce reckless behavior, further increasing the likelihood of future crises.

Moral Hazard Occurs When People Behave Recklessly Because They Know