In the insurance market, "moral hazard" refers to the problem that:
A) insurers can't tell high-risk customers from low-risk customers.
B) high-risk customers have an incentive to give false signals to make themselves look like low-risk customers.
C) companies may unfairly lump individuals together by race, sex, age or other characteristics in an attempt to use demographic data to pinpoint high-risk populations.
D) individuals are willing and able to pay different amounts for insurance, but must all be charged the same amount.
E) individuals may change their behavior after the insurance is bought, so that they behave in a more high-risk manner than they did before.

Question

Quizplus · Accepted Answer

Moral hazard in the insurance market refers to the risk that individuals may change their behavior after purchasing insurance, knowing that they are protected against the risks. For instance, an individual may become more careless about their property or health after they are insured. This can result in increased costs for insurers and higher premiums for all individuals.

In the Insurance Market, "Moral Hazard" Refers to the Problem