Moral hazard:
A)occurs when incentives are distorted because an individual knows more about his or her own actions than other people do.
B)is a term used to describe the bonuses paid for particularly hazardous jobs (such as firefighting).
C)is a term used synonymously with value judgment.
D)refers to the questionable morality of price gouging in hazardous times (e.g. ,in the presence of famines or floods).

Question

Quizplus · Accepted Answer

Moral hazard refers to the situation where one party takes risks because the costs or negative consequences of those risks will be borne by another party. This occurs when incentives are distorted because an individual (or party) knows more about his or her own actions than other people do. This can happen in situations like insurance, where an insured person may take more risks because they know the insurance company will cover any losses, leading to an increase in moral hazard.

Moral Hazard