Moral hazard is a problem

Question

Quizplus · Accepted Answer

Moral hazard is a problem that arises after a transaction is consummated, where one party to a transaction may take excessive risk or engage in other harmful behavior because they do not bear the full consequences of their actions. This is particularly relevant in situations such as insurance or banking, where one party may feel protected from the consequences of their actions because they are insured or backed by a government guarantee. Moral hazard can lead to inefficiencies and instability in financial markets. It is not peculiar to direct finance or mutual funds and can also arise in other types of transactions such as insurance or government bailouts.

Moral Hazard Is a Problem